The Bank of England has raised interest rates from 4.25% to 4.5%, with inflation anticipated to stay higher for longer than previously expected. The 12th successive increase sees rates sit at their highest level since the 2008 financial crisis. The Bank is now expecting the inflation rate (currently at 10.1%) to be over 5% at the end of the year, rather than below 4%, as forecast in February, thanks to high food prices and a resilient job market. The Bank’s official inflation target is 2%.

Martin Beck, chief economic advisor to the EY ITEM Club, reacted: “The Bank of England’s approach since late 2021 of consistently increasing interest rates continued this month. A 7-2 majority on the MPC voted to raise Bank Rate by 25bps to 4.5%, adding to the most significant tightening in monetary policy in over 30 years and lifting the policy rate to the highest since October 2008.

“In the view of the majority on the MPC, another rate rise was justified by an economy more resilient than expected, persistent strength in domestic price and wage setting, and a tight jobs market. The impact of the first factor was revealed in the biggest upgrade to growth forecasts in the MPC’s history. Thanks in part to further falls in wholesale energy prices, previous predictions of a prolonged recession have been revised away and the Bank of England now expects the economy to expand 0.25% this year and 0.75% in 2024, versus declines of 0.5% and 0.25% in its last forecast in February. That said, the Bank of England’s forecast for growth next year is still below the latest consensus of 0.9%.

“With the latest rise in Bank Rate widely expected, the big uncertainty in advance of the MPC’s latest decision was the message the committee would send about the likelihood of yet more rate increases in the months ahead. On that score, the MPC kept the door open to more tightening if inflation proves “persistent”, retaining the data-driven approach it has set out in recent meetings. And there was no sign of push back against current market interest rate expectations, which, in advance of May’s meeting, saw Bank Rate peaking at 4.75%-5% later this year.

“The EY ITEM Club is warier about expecting further increases in Bank Rate. Granted, the Bank of England thinks inflation will fall less rapidly than in its last forecast, mainly due to an assumption of higher food price inflation, with the Consumer Price Index (CPI) measure predicted to be just above 5% at the end of this year. And the Bank of England still sees significant upside risks to the inflation outlook from “second round effects” of high inflation feeding into domestic prices and wages.

“But there’s now a lot of monetary tightening in the system, and the impact on activity and prices comes with a lengthy lag. The Bank of England’s own estimate is that only a third of the impact of rising rates has yet been felt by households. And the Bank’s central forecast shows inflation falling well below the 2% target during 2025. Since the Bank of England targets headline inflation, it will be increasingly difficult to present a justification for more rate rises while also forecasting a substantial undershoot of the inflation target.

“What’s more, the next couple of months are likely to bring a significant decline in headline, core and services inflation, as lower energy prices push down headline inflation and, indirectly, weigh on underlying inflationary pressure. This should further depress inflation expectations among the public, feeding through into lower wage demands, constraining businesses’ ability and willingness to put up prices.

“But the hawkish skew of today’s announcement, with upgrades to growth and inflation forecasts, suggests one more rate rise wouldn’t be out of the question. And if the Bank of England’s expectation of greater stickiness in inflation proves true, the prospect of rate cuts may be delayed until well into 2024.”  

A Derby-based marketing and design business has tripled its turnover and grown the team headcount by 60% after learning to “stay in its lane.” MacMartin was founded in 2017 after sisters Claire MacDonald and Anna Hutton decided to turn their freelancing careers into a small business. Combining their expertise in behavioural science and creative marketing, the firm now produces branding and marketing campaigns for clients across the UK. Due to strong client demand, the business reported a significant growth curve throughout 2020-21 but faced various barriers to maintain stability. Claire decided to enrol in a 12-week Help to Grow: Management Course designed to help business leaders and their senior managers to increase resilience, innovation and growth within their organisations. Delivered by the University of Derby’s business school – a recipient of the Small Business Charter award that recognises institutions that support small business – Claire finished the course with the tools needed to make improvements to stabilise the business’s growth and streamline its offering. The year before enrolling on the Help to Grow: Management Course, the business reported a turnover of £212,000 (Sep 2020 – Aug 2021). But since completing the course, turnover has increased by almost three quarters to £456,000 (Sep 2021 – Aug 2022). The MacMartin team has also grown from seven employees to a team of 12. Claire MacDonald, design director of MacMartin, said: “We took away so much from the course but there were three key points that resulted in our success. First, we learned about the dangers of spending too much time in the business and not enough on the business. We’ve now got into a really good habit of setting aside time each week to have more strategic conversations and plan our future. “The second big takeaway was around processes. Working in such a creative environment often means the structures are put in place last. We’ve worked hard since the Help to Grow: Management Course to put a framework in place that helps us standardise our quality while leaving room for creativity. “The final takeaway, and a crucial one for us, was internal communications. Before the course, my sister and I would try and do everything. Now we’ve reassessed where we want to be and where our strengths lie so have redefined our roles and learnt to stay in our own lane.” The Help to Grow: Management Course also includes peer-to-peer group work and one-to-one support from a mentor throughout the programme. Claire added: “The groups were a safe space, and I was given the chance to learn different ways of thinking. I also learned that as an agency we don’t need to do it all. We can narrow our focus and do more of the work we love to do. “I’d strongly recommend to anyone looking to grow their business to apply for the Help to Grow: Management Course. You get to have honest conversations with peers and learn from true experts. As a business, the relationships have also opened up a lot of doors for us. “We’ve already spoken at local schools about staying safe on social media, delivered talks to Derbyshire University and the Derbyshire Festival of Business, and have plans to continue educating others across the region.” MacMartin is now planning to launch a digital declutter campaign later this year to encourage businesses to evaluate and improve the carbon footprint of their digital activities. Michael Hayman MBE, chair, Small Business Charter, said: “The Help to Grow: Management Course is an invaluable tool for SME business leaders looking to gain new skills that allow them to grow. From the experts on hand to give advice, to leaders that can enhance productivity, the course helps businesses overcome challenges, make attainable goals and become more resilient. “I’m delighted to have observed MacMartin’s journey so far and look forward to seeing how the business continues to explore new opportunities in the future.”