• Swindon & Wiltshire News
• Friday June 23 2023
• Author Name: Peter Davison

Business leaders react to interest rate hike

The latest hike in interest rates is a ‘straightjacket’ that could ‘push some businesses to the brink’ according to business leaders.

Business organisations spoke out after the Bank of England raised interest rates by half a point to five per cent – the highest level since 2008.

It was the 13th consecutive rise, as the Bank struggles to tackle stubbornly high inflation.

And while the headline concentrated on what the rise meant for mortgage payers, business lobby groups were on hand to talk about the impact on commerce.

The Federation of Small Businesses called interest rates a ‘straitjacket on business investment’.

National chair Martin McTague said: “We are standing at a crossroads. Inflation and interest rates are unrelenting.

“While higher interest rates are a tool to control inflation, the weight of escalating costs means consumers have less disposable income to circulate in the economy. When the money in their pockets is worth less, the upshot is reduced sales for businesses.

“High street retailers, start-ups, local bakeries, and tech innovators alike are all feeling the pinch.

“As the weight on the small business and self-employed community grows heavier, we must strike a delicate balance. Our entrepreneurs need room to breathe, room to innovate and crucially room to grow.”

Anna Leach, deputy chief economist at the CBI, said: “The sharper increase will come as a blow to hard-pressed households and businesses who are struggling with rising costs.

“It is a delicate balancing act trying to ensure high inflation doesn’t become embedded in the economy while limiting economic damage.”

David Bharier, head of research at the British Chambers of Commerce, said “While inflation is still the top concern for businesses, interest rate rises are now causing worry for a rapidly growing number of firms with soaring borrowing costs. Businesses will need clarity on the direction of further changes.

“High inflation, high interest rates and slow growth will be a lethal combination for many. Fundamentally, solutions need to be found beyond the interest rate lever.”

Regionally, Phil Smith, managing director of Business West, said: “The decision to raise the base rate to five per cent will increase pressure on businesses during an already challenging time, as tightness in the labour market prevails and trade barriers with the EU are driving up costs.

“The increase will inevitably impact businesses as consumers with debts will not have as much discretionary income to spend and those companies reliant on overdrafts or variable rate loans will be hit with higher interest costs, impacting their bottom line.

“High inflation and high interest rates could really push some businesses to the brink and solutions must be found that do not depend on the interest rate lever.”

Bank of England image reproduced under Creative Commons licence