How will the Rise in Interest Rates affect Businesses?
Last week saw the news that the Bank of England were to raise interest rates for the first time in a decade. The official bank rate has been increased from 0.25% to 0.5%. This is the first rise that the Bank of England has applied since July 2007, and whilst many businesses were aware that an increase was imminent, the effects of an interest rate rise will still have an impact on their day-to-day operations.
How will this Impact the Economy and Businesses?
The long and the short of the interest rate rise is that businesses on the whole will be more stretched. The cost of borrowing, and therefore business loans, will be higher. Businesses will also be under growing wage pressure, as the theory behind the interest rate rise is to slow down inflation, which in turn should increase wages.
In terms of recruitment, it could mean that companies are more hesitant to make new hires. This is especially the case if they’re worried that output will be down.
However, many companies will have anticipated this rise ahead of time. Those businesses that looked ahead and forecasted the rise should therefore have budgeted, or amended their business plans, accordingly.
What Positives can be taken from the Interest Rate Rise?
The good news is that by raising interest rates, the Bank of England is stating its confidence in the UK economy. In the long term, this should see the Pound strengthen against the Euro, and more investment take place in the UK.
For those businesses that did look ahead and amend their business plans accordingly, there will still be room within the budget for investment, recruitment and growth. Many businesses are also saying that the impact at the moment is minimal, and that they can plan ahead for subsequent rises which are scheduled to take place between now and 2020.
Hopefully increased confidence in the UK economy will drive investment and growth for all of us!