As speculation grows that the Bank of England Policy Committee (MPC) will increase interest rates at its next meeting in November, the ICAEW is advising businesses to be prepared following over 8 years of historically low rates of 0.5% and, since the Brexit vote,  0.25%.

Matthew Rideout, ICAEW Director of Business, said: “Many businesses have only known low rates and could be sleepwalking into problems when they do start to increase. Circumstances can change rapidly and businesses should be prepared by undertaking a number of simple steps. However there can be a degree of complacency especially among those business who have only started up in the last decade or so.”

ICAEW advises companies to:

  1. Manage cash flow and the need to use finance to supplement day to day cash management will minimise the impact of any business rate increase
  2. Do forecasts of future scenarios and plan for these. For example what would happen to the profitability and cash flow of the business if there was a 1% increase in interest rates?
  3. Make sure customers have a good credit rating, especially larger customers who are more crucial to your business. Interest rate rises increase the risk of business failure
  4. Many businesses have an accumulated cash surplus so there may be opportunities to invest to improve competitiveness when other companies need help.
  5. Try to gauge how your competitors are doing. Does this present other opportunities?

Rideout added: “Businesses are probably already paying upwards of 4% above the Bank of England base. A series of interest rate rises may significant impact low margin businesses, increasing overall business risk.  This puts the onus on businesses to manage their cash flow tightly, creating contingency in their financing facilities, and credit checking customers to minimise financial exposure”