The Bank of England’s hike in interest rates to 5.25%, has sparked further concerns among UK businesses, particularly smaller firms with limited cash reserves.
Vicky Pryce, a member of the British Chambers of Commerce (BCC) Economic Advisory Council, expressed the prevailing sentiment, said: “Businesses across the UK will be fervently hoping that today’s rise in interest rates is the last they will see.”
The rise in interest rates comes at a time when the economic environment seems increasingly unfavorable for smaller businesses. The increase may have been anticipated, but with a recent uptick in insolvencies, it’s clear that smaller firms, with their greater exposure to finance, are under pressure.
However, the latest data also offers some hopeful signs. According to the Office for National Statistics, input cost pressures for businesses are starting to decline. Furthermore, recent BCC research reveals a drop in the number of companies expecting to increase prices – down 15 percentage points to 45% compared to six months ago.
A further substantial fall in inflation is anticipated in July, reflecting last year’s energy price rises dropping out of the data.
Despite these promising trends, inflation remains the primary concern for businesses, with interest rates following closely behind. According to the BCC’s latest survey, 41% of businesses cited interest rates as a greater worry than three months ago.
The cumulative effect of past and present interest rate increases might take up to 18 months to fully manifest. Pryce warned: “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.”
On a positive note, Pryce highlighted the Government’s recent expansion of the list of shortage occupations for recruiting workers from abroad. This move could potentially ease staff pressures, a necessary step as businesses navigate a shifting economic landscape.
