Latest interest rate rise brings more uncertainty for business - Chamber
A 14th consecutive rise in interest rates from the Bank of England creates "another level of uncertainty" for firms, business leaders said today.
The Bank of England yesterday raised its official rate by a quarter of a percentage point to 5.25 per cent.
While the increase was somewhat smaller than some economists had expected, the Bank forecast the economy will stagnate for the next three years, when GDP will increase by just one per cent.
And governor Andrew Bailey warned households and businesses the Bank would keep interest rates sufficiently high for at least two years - or as long as it takes to keep inflation under control.
Cameron Uppal (pictured), policy advisor at Greater Birmingham Chambers of Commerce, said: "Whilst we recognise the impact that sustained high inflation is having on local businesses, the Bank of England's decision to again raise interest rates will create yet another level of uncertainty for firms across the region.
"It is telling than in our last Quarterly Business Report, 18 per cent of firms cited interest rates as more of a concern to their business than three months ago - with many grappling with spiralling costs, using a blunt instrument to counteract inflation is likely to have a knock-on impact for those businesses struggling to repay loans and impact levels of cash flow.
"Raising rates will also have an impact on household spending which in turn is likely to dent consumer spending - a number of hospitality firms we work closely with have expressed their concerns around this worrying trend.
"It is crucial that the businesses that we represent have the stability and confidence to plan for the future. Intervention from Government to drive down inflationary pressures by easing labour market pressures and smoothing trade flows with the European Union would make an immediate difference."
The interest rates rise was announced amid reports of declining footfall on the high street in July - a development the British Independent Retailers Association (Bira) described as “a double blow”.
Overall footfall was down by 0.3 per cent and Bira's CEO Andrew Goodacre said: “Footfall in July was really disappointing. It is easy to assume it was the weather, and the rain has not helped, but we also have to see the decline in consumer confidence and consumer expenditure.
“Today's interest rate announcement is not a surprise, and it will not be a surprise if it reduces spending even more.
“Inflation is falling, and that is due to a reduction in energy costs, not interest rate rises.
“The Bank of England is using a blunt instrument based on a recent history of poor forecasting.”
Meanwhile, accountants and business advisory firm Crowe UK warned the interest rates rise will put more firms at risk of insolvency.
Steven Edwards, partner, recovery solutions, said: “Insolvency numbers in the UK are spiralling, reaching record highs with nearly a one third increase to over 2,000 appointments to distressed businesses in June compared to the same time last year, having faced waves of economic shocks with significant interest rate increases, Brexit, the highest inflation rate in the G7 and readjustment to the post-pandemic consumer environment.
“The path to growth and stability could be way off for many businesses as forecasts predict the base rate may remain high until the early part of 2024.
“For many, the path out of the current doldrums could be a long and weary grind and in this tough economic environment, those with the deepest pockets are likely to survive into next year.”
