FSB National Chair Martin McTague has warned interest rates rise risk ‘entrenching’ economic damage on small firms
The Bank of England has hiked its interest rates up in a new 15-year high. This many people will face higher borrowing costs – and some businesses will face higher loan rates. In a bid to curb inflation, the Bank of England has raised their interest rates from 4.25% to 4.5%. This means the UK rates are at the highest level since October 2008 in its 12th consecutive increase, back when the global economy faced the height of the financial crisis. The rise has sparked further fears over the viability of hospitality businesses, with firms already battling skyrocketing energy bills.
Small firms are now once again being hit with yet another hurdle in their growth. Rising rates will have an impact on consumers as they face rising borrowing costs, spending more of their income on debt payments with less money to spend on goods and services. Businesses will also face increased costs of business loans. Federation of Small Businesses (FSB) National Chair Martin McTague said: “Small firms will be especially worried to see the base rate rise once more, following unexpectedly persistent levels of inflation, and will once again be hoping that today’s rise represents an apex.
“Further rate increases past this latest one will risk entrenching the economic damage to small firms, severely curtailing their ability to invest and grow. We cannot end up in a situation where the cure is adding to the harms caused by the disease. Getting the rate of price rises under control is vitally important for small firms, but they could be forgiven for asking if the blunt weapon of base rate increases is effective, given that they are still very much feeling the effects of higher prices at the same time.
“Recent remarks on inflation by senior members of the Bank of England team have reinforced small businesses’ fears that the Bank is out of touch with the reality of running a small firm in the UK. With rate rises dampening consumer demand and making many business debts more expensive, small firms are absolutely up against it, while Government energy support has fallen away, leaving many exposed to spiralling utility bills.”
McTague has urged the government to revamp current policies to help small businesses stay afloat during this difficult time. He added: “The UK’s economic ecosystem needs small businesses to invest in order to grow and thrive, which means they need access to affordable credit. Our Small Business Index research found that small firms’ view of the affordability and availability of credit hit its lowest ever level in the first quarter, while the interest rates on loans have surged. While overall, small firms’ confidence bounced back compared to the end of last year, it’s still not in positive territory, and a record proportion of small businesses said their costs were higher than in the same quarter last year.
“Policies to help small businesses to invest and prosper seem thin on the ground. To address this, the Prudential Regulation Authority must cancel its plans to remove the SME supporting factor, which makes lending to small businesses less capital-intensive for banks; its loss would only make the lending situation more difficult for small businesses. The Government tackling late payment to free up cash for small firms in supply chains would also be a huge help – the value of wrongfully withheld payments is eroded for every day that funds are not released to supply chains.”