Business leaders react to interest rates rise

The pound dropped by almost one per cent against the dollar as the Bank of England raised the base rate today.

Sterling fell 0.91 per cent against the dollar, and 1.32 per cent against the euro after the decision was announced.

The decision was somewhat predictable and despite only increasing by 0.25% was not welcomed by many  in business.

Here’s a few reactions so far from readers….

 

Chris Radford, Gateley

Chris Radford, partner at Gateley plc in Nottingham, said:

“As widely predicted, the Bank of England’s Monetary Policy Committee has today decided to raise the base rate to 0.5%.

“Even a small rise to the historically low level of interest rates could cause problems for many borrowers. Vulnerability to a financial shock like an interest rate rise is widespread; many people just don’t have much financial headroom left, following a long period of stagnating wages and growing levels of household debt. On the business side, our research has picked up thousands of businesses who would be unable to adjust to even a small interest rate rise.

“The latest statistics showed an increase in the number of people becoming insolvent in the third quarter of this year, continuing an overall upward trend since mid-2015. With interest rates having hovered near rock bottom for nearly a decade, many borrowers are deeply unprepared for any rise in the cost of personal credit – many will never even have experienced a rate rise. This is especially acute as use of credit can often be the only way people can afford to pay for a place to live, a car to get to work in, or even the basics, like food or energy bills.

“Our concern is that many people now take soft credit terms and low interest rates for granted, to an extent, whether or not they realise it, and should the current conditions change, they will find themselves exposed.”

 

 

Chris Hobson

Chris Hobson, Director of Policy at East Midlands Chamber, says: “Our preferred outcome was for a further period of monetary stability, with interest rates retained at their historic low for the near term.

“However, today’s quarter of a percentage point rise may have little effect on most companies, although some will view this as the first step in a longer policy movement, which could defer investment.

“These are challenging times for monetary policymakers. The MPC had the unenviable task of weighing future risks to inflation, from a tight – and tightening – labour market, pass-through from a weaker pound and rising commodity prices. Against this, they needed to consider the future risks to undershooting the inflation target from weak growth, fragile business confidence, and the effects of uncertainty.

“These are finely-balanced judgements. While interest rates will need to return to historic averages at some point, it should be done slowly and with reference to the ever-changing economic context.

“With the Bank of England’s latest forecasts of sluggish growth for the next few years, the Government must use the upcoming Budget to boost business confidence for investment and reduce burdens such as business rates hikes.”

 

 

Ian Stewart, Chief Economist at Deloitte

Ian Stewart, chief economist at Deloitte, the business advisory firm, said:

“Today’s rate hike has been on the cards for eight weeks. Short of walking down Threadneedle Street wearing a sandwich board telling us that the Bank was about to raise rates Mr Carney couldn’t have made his intentions clearer.

“The Bank is on a tightrope, it wants to dampen down inflation and consumer borrowing without knocking out the UK consumer. Incomes are shrinking and households need cheap finance.

“Today’s rise is a warning shot, not the start of quick fire campaign of rate hikes. With the Bank labouring the risks to growth we are heading into the most cautious, tentative rate hike cycle in modern history.”

 

 

Peter Hemington, Partner, BDO LLP

Peter Hemington, Head of Corporate Finance at BDO, adds:

“The long journey to wean the country off cheap credit has finally begun. Financial markets may have foreseen the rise but struggling households will be less prepared. Increased loan and mortgage repayments- along with existing inflation pressures and stagnant wage growth – spell difficult times ahead for UK consumers.

“The British economy is lagging behind most other major countries and the continued uncertainty of Brexit means that the Bank of England must now take a step back and see how businesses and households react to the rise.  Instead it is now the turn of the Government to act and address the UK’s stubbornly low levels of productivity by using the still comparatively cheap cost of borrowing to invest in business-friendly infrastructure, training and skills”.

 

 

Lee Hopley Chief Economist EEF

, Chief Economist at EEF, the manufacturers’ organisation, says:

“Clearly not the time for surprises, the MPC voted  as a majority of its members has been signalling. The decision will, no doubt be hailed as historic, but for industry that’s not because of the impact manufacturers might expect this one rise to have on demand conditions but what it might mean for the path of monetary policy in the next few years.

“With the UK inflation and growth outlook still subject to a high degree of uncertainty this was not a clear cut decision. The indication that the hiking cycle will be gradual and limited provides partial reassurance, but needs to be balanced with on-going clarity on how the evolution of data will determine the timing and pace of future changes.

“This decision was finely balanced and the next one should come only with the emergence of clear evidence of new domestic inflationary pressures or indeed a ramping up of downside risks to the growth and inflation outlook.”

 

 

Rain Newton-Smith

Rain Newton-Smith, CBI Chief Economist, adds:

“The decision to raise interest rates comes as no surprise, given the recent signals from the Bank and several Monetary Policy Committee members signalling their intention to vote for a change of course.

“While it’s the first rate rise in over a decade, it is only taking the rate back to the level seen in August 2016 and at 0.5% it remains near rock bottom.

“Businesses will be watching the reaction of consumers closely and what’s important is the pace of any future rises. As rates creep up, it’ll be important to keep an eye on the impact for those at the lower end of the income scale.”

 

 

Mike Cherry

Mike Cherry, Federation of Small Businesses (FSB) National Chairman, comments:

“Today’s rate rise will mean yet more cost pressures for small firms as they battle spiralling prices and flagging consumer demand. An increase was inevitable at some stage so many businesses will have expected today’s rise. But that’s not to say they can absorb more hikes in the short-term. This change must be allowed to properly bed in before further increases are considered.

“Only one in ten small firms is currently applying for external finance and we have a chronic issue with permanent non-borrowers in the small business community. Today’s rate increase could heighten the sense that borrowing is too expensive if you’re a small firm. That would threaten investment, growth and job creation.

“You also need to consider the fact that, for a typical micro business owner, personal and business finance are closely interlinked. If mortgage and car leasing payments start to rise that’s less money to play with when it comes to expanding the business and taking on new people.”