Small firms be aware – Bank of England rise in interest rates

With the news that the Bank of England may raise interest rates again by June, small firms need to be aware of the effect this may have on their business.

Rates are anticipated to shoot up from 5.25 per cent to 5.5 per cent next month, but with the UK’s inflation rate at a current 16-year high, a larger increase of up to 5.75 per cent could be needed to guard against it.

A recent report from the National Institute for Economic and Social Research says: ‘The rise in RPI inflation feeding through into higher wage demands remains a cause for concern, one perhaps that would be counteracted by a half percentage point jump in the base rate.’ spoke to James Meyrick at the Association of Chartered Certified Accountants (ACCA) on the possible effects for small to medium-sized enterprises (SMEs).

He comments: ‘More than anything, small firms need economic stability. If any of these measures taken serve to maintain that stability it will surely be good news for SMEs in the long run, even if it is a short-term burden. However, the ACCA feels that a full half point rise in interest rates could do more harm than good.

‘Many small business owners are quite highly geared in their borrowing, using credit cards as a way of financing their businesses. This extends their risk and an increase in rates will inevitably make borrowing more expensive. It will also hit the pockets of consumers in general, dampening consumer spending, which is likely to effect small firms in the high street.’

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