The Bank of England has raised interest rates for the first time in over a decade, from 0.25 per cent to 0.5 per cent, with the Governor of the Bank of England, Mark Carney, also warning that there may be more rises to come in the near future.
The news has been met with a mixed reaction from business leaders. Mike Cherry, Federation of Small Businesses (FSB) National Chairman, says: “[The] rate rise will mean yet more cost pressures for small firms as they battle spiraling prices and flagging consumer demand. An increase was inevitable at some stage so many businesses will have expected today’s rise.”
The response from Rain Newton-Smith of the CBI was however more sanguine, saying: “The decision to raise interest rates comes as no surprise, given the recent signals from the Bank and several MPC members signaling their intention to vote for a change of course.
“While it’s the first rate rise in over a decade, it is only taking the rate back to the level seen in August 2016 and at 0.5 per cent it remains near rock bottom. Businesses will be watching the reaction of consumers closely and what’s important is the pace of any future rises.”
James Roberts, Chief Economist at Knight Frank, adds: “For commercial property, it should be remembered that debt has played far less of a role in the market in recent years than was the case prior to the financial crisis.
“Commercial property yields are not strongly correlated to interest rates, so I do not see a small rate increase having much of an impact. Indeed, in some markets the re-emergence of rental growth, such as for offices in districts popular with technology firms, should keep investors active.”
Higher interest rates will mean the cost of loans, such as mortgages, will go up, which will have a knock-on effect on people’s disposable income – and this, the FSB warns, could have a knock-on effect on Britain’s businesses too.
“You need to consider the fact that, for a typical micro business owner, personal and business finance are closely interlinked,” says Mr Cherry. “If mortgage and car leasing payments start to rise that’s less money to play with when it comes to expanding the business and taking on new people.”
Whilst, in the short term, the impact of this rise may be limited, if the Governor goes ahead with further rises over the coming months, UK SMEs could be in for even more of a rocky ride.
Whilst the economic environment and business conditions remain turbulent for UK SMEs, due to the size and nature of their businesses, they have the advantage of being able to be flexible and quick to respond to changing market conditions. The key is to partner with the right specialist adviser who will guide you on your strategy and assist in making those all-important business decisions that will have the greatest impact on future success.
Through our partner businesses BM Structured Finance and BM Advisory, we are also able to help with sourcing and restructuring debt finance for SME businesses, as well as assisting with resolving issues which can impact on business performance and success, and finding innovative solutions for businesses and individuals in distress. Contact Andy Pear or Mike Solomons for more information.