Interest rates rise to 2.25%
The Bank of England (BoE) have announced a .5% in interest rates – and with more rises predicted by the end of 2022, let’s take a look at why they’re rising and how it affects your business. There’ll also be a fiscal statement tomorrow, and we’ll keep you up to date on what this means for you.
Why does the BoE raise interest rates?
Parliament tasks the BoE to keep the rate of inflation at 2%, and putting up interest rates is the main thing they can do to stop prices rising so fast.
At the moment, wholesale energy prices are driving global inflation, mainly due to Russia’s invasion of Ukraine. But we’re also paying higher pries for goods we buy from abroad. This leads businesses to charge more for their products because of the higher costs they face. In theory, rising interest rates curbs spending and encourages saving.
What does this mean for my business?
When interest rates rise, this leads to higher repayments on variable rate borrowing. It means that repayments on credit cards, variable rate loans and mortgages will be higher on a monthly basis. It also affects the rate that banks and lenders charge for lending, and could make it more difficult to borrow.
What can I do to protect my business?
There’s a few steps you can take to look at your options.
- Work out the impact on your business.
Look at all the finance products you have on variable rates and see how much the rate rises could add to your repayments.
- Consider your options.
Think about what the increase means for your business. If you are funding the company through your own finances, can they absorb this or will it put a strain on cash flow?
- Explore what you can do.
There are many forms of finance that can use a fixed rate but this has to be agreed at the outset – for example asset finance, purchase finance and invoice finance. You can also get short-term loans on a fixed rate repayment. This fixes the repayments throughout the duration of the agreement – meaning you have certainty and control over your outgoings going forward.
What happens next?
The BoE Monetary Policy Committee will meet again in around eight weeks’ time to consider further rises. In the meantime, the Chancellor of the Exchequer the Rt Hon Kwasi Kwarteng MP will deliver his first financial statement this morning – and it’s expected he’ll announce various policies that may affect your business. We’ll make sure we keep you updated on what this means.
If you’d like to speak to one of our team, you can call us on 01908 926262.