The Federation of Small Businesses (FSB) has expressed concern over the Bank of England’s decision to increase interest rates by 0.5% to 5%, warning it could slow down economic growth in the small business sector.
The FSB is urging the Government to raise the VAT threshold in response to escalating costs for consumers and businesses.
Martin McTague, FSB national chair, said: “The Bank of England is risking economic slowdown across our small business community, with a jarring 0.5% increase in interest rates.”
The FSB has described this rate increase as an added burden for businesses already under pressure. Higher interest rates, although a tool for controlling inflation, reduce consumers’ disposable income, leading to decreased sales for businesses.
McTague continued: “It’s like adding another heavy load to an already full plate.” He further appealed to banks to be understanding and patient with businesses grappling with higher costs due to variable-rate Coronavirus Business Interruption Loans (CBILS).
To cushion businesses and consumers from the impacts of inflation, the FSB has proposed that the Government increase the VAT threshold from £85,000 to £100,000. This move could alleviate some of the effects of price hikes on businesses and their customers.
The FSB has also called on energy suppliers to allow firms to ‘blend and extend’ their contracts to benefit from lower wholesale prices. Late payments should be addressed, they say, as these can impede business growth and stability.
Despite these challenges, the FSB’s latest Small Business Index (SBI) survey reveals a mixed economic picture, with 40% of firms experiencing a dip in sales in Q1 2023, while a third managed to increase them.
The resilience of the small business sector was also demonstrated with 46% of businesses surveyed optimistic about the upcoming quarter.
McTague concluded: “Rising interest rates are not just numbers on a page, they are lived realities that influence consumer behaviour. The BoE should proceed with caution, mindful of these broad-ranging effects.”
