The Bank of England has started February by raising the base rate from 3.5% to 4%. Marking the 10th consecutive hike in interest rates, to their highest level in over 14 years, it comes as part of a continued approach to reduce inflation, but this is not without significant side-effects and further pressure for many small businesses.
Those impacted most by the decision will be mortgage holders and businesses reliant on debt to keep afloat after three years of economic shocks, as noted by David Bharier, head of research at the British Chambers of Commerce (BCC). He added: “Our research shows that while inflation remains by far and away the top concern for businesses with 80% citing this in Q4 2022, concern about interest rates has risen sharply with 43% now citing this. With the Bank expecting inflation to slow to around 4% by the end of the year, further rate rises could now simply add to the risk of a deeper recession, outweighing the benefits.
“The main driver of inflation for most firms is energy costs, but this requires a clear policy solution, with immediate relief for those most affected and longer-term structural changes to ensure this market failure does not occur again. Businesses will also need to see concrete action in the upcoming Budget to promote growth, including plans on infrastructure, tax, skills, and trade.”
The rise comes as the Bank of England now expects a recession in the UK to be shorter and shallower than previously anticipated.
