Interest rates rise to 15 year high – business industry reaction

The Bank of England has raised its key interest rate by a quarter of a percentage point to a 15-year peak of 5.25%. The increase to 5.25%, the fourteenth rate rise in a row, taking the base rate to the highest it’s been since April 2008.

The Bank of England has increased interest rates 0.25 percentage points to 5.25%. This is a 15 year high.

Commenting on the rise, Michael McGowan, Managing Director of Foreign Exchange, Bibby Financial Services said “There’s an air of ‘Groundhog Day’ about the Bank of England’s decision to raise interest rates yet again. This fourteenth hike in a row pushes rates to their highest level since March 2008, and while the 0.25% increase is lower than might have been expected, the continuing upward trajectory seriously undermines the growth ambitions of businesses up and down the UK. For those already struggling with margin erosion and cashflow challenges, ever-higher interest rates signal more pain to come, and the likelihood of yet more insolvencies over the medium term – especially among SMEs.”

Federation of Small Businesses (FSB) National Chair Martin McTague said “With concerns about a recession triggered by high interest rates growing, today’s base rate decision adds to the dripfeed of economic bad news that small businesses have weathered since the cost of doing business crisis got its grips into the UK.”

“Our latest barometer of small business confidence found it stalled significantly between the first and second quarters of the year, with interest rate rises undoubtedly a huge factor behind the fall.”

“Low-cost finance for small firms has almost entirely disappeared, according to our research, a trend which this latest base rate rise will exacerbate. That’s highly unhelpful news for productivity and for growth.”

“Yesterday, the Prime Minister claimed that small businesses are ‘booming’ – but we’d class what he said as more of an aspiration at this point, unfortunately. The latest figures for business closures and insolvencies underline the scale of the challenges facing small firms, as even beloved and well-established local firms can’t keep up with rising bills amid falling sales.”

“Consumer footfall levels stumbled in July, with downpours and transport woes certainly not helping. It’s especially concerning that high streets – where independent businesses tend to cluster – saw more of a hit than out-of-town shopping centres and retail parks, whose high rents make them out of reach for the vast majority of small firms.”

“Looking across the Atlantic, the US Government seems to have inflation on the run, as politicians there have recognised that a growth agenda as well as inflation suppression is needed to curb rising prices. The numbers tell the story, with US inflation at 2.97%, and annualised GDP for Q2 2023 rising strongly to 2.4%; UK inflation is still at 7.9%, while our GDP fell by 0.4% in the 12 months to May, with the Bank of England today downgrading its medium-term growth predictions. There are lessons there for the UK, for politicians who are really serious about helping our 5.5 million small firms and self-employed people.”

“If small firms are to boom, as we want them to, the Government could do a lot to help create the conditions for them to rebound. We want to see a comprehensive menu for small business growth and recovery on the table – from clamping down on late payment, to extending business rates relief, to increasing the VAT threshold. The risks of stagnation and low productivity far outweigh the estimated costs of sensible policies to help small firms.”

Arun Singh, Global Chief Economist at Dun and Bradstreet said “The Bank of England’s decision to once again raise interest rates indicates that keeping inflation under control continues to be a top priority. The further increase in interest rates is likely to spark concerns for businesses across the UK who have already experienced a challenging few years.”

“Our recent research shows that businesses are still dealing with weak consumer demand. This economic uncertainty calls for more resilience, and it’s important for businesses to have a detailed view of their ecosystem to help navigate the current environment. Having access to data that provides more visibility of supply chains, financial pipeline and customer needs is critical for businesses to predict, prepare and secure their future success.”

Vicky Pryce, Economic Advisory Council member, from British Chambers of Commerce (BCC) said “Businesses across the UK will be fervently hoping that today’s rise in interest rates is the last they will see. While many firms will have already factored this increase into their plans, it is clear from the recent rise in insolvencies that the economic environment is becoming stacked against smaller firms. They are the ones with less cash reserves in the bank and greater exposure to finance.”

“Yet data from the Office for National Statistics clearly shows that input cost pressures for firms are finally falling. And recent BCC research backs this up with 45% of companies now expecting to increase prices, a 15-percentage point fall compared to six months ago. We are also likely to see a further substantial fall in inflation in July as last year’s energy price rises drop out of the data.”

“While inflation remains the top concern for businesses overall, interest rates have emerged as the second top concern, with 41% citing this as more of a worry than three months ago in the BCC’s latest survey.”

“And there is now a real danger that the economy could be pushed into recession as it takes 18 months for changes in interest rate rises to filter through. With all the cumulative pressure of past rises yet to come, business will be watching closely for any further indications on the Bank’s plans.”

“At the same time, it is encouraging that the Government has recently expanded the list of shortage occupations to recruit more workers from abroad. Hopefully it will now be considering what more can be done to ease staff pressures.”

Suren Thiru, Economics Director at ICAEW, said “This latest rate hike will be particularly excruciating for those people struggling with mounting mortgage bills and firms dealing with a multitude of cost pressures. The Bank of England remains too fixated on backward looking data when setting interest rates, which risks wider economic damage given the large time lag between rate rises and their full impact on households and businesses.”

“Given that most of the 14 interest rate rises are yet to filter through into the real economy, the Bank risks over-tightening, needlessly adding to the risk of recession.”

“With the Bank of England expecting inflation to fall quickly, the case for further interest rate hikes is diminishing fast.”