Effective yesterday (2 November), the Bank of England (BoE) doubled rates from 0.25% to 0.5%, the first rise since the eve of the financial crash in 2007. The BoE said it wanted to protect British households from the spiralling costs of living since the Brexit vote, and voted seven to two to initiate the rise. BoE governor Mark Carney has been a vehement Brexit critic since the UK voted to leave the EU last year.
Citing the need to keep inflation, which is currently around 3%, in check, the BoE said rates could rise further to 1% by 2020. Analysis from broker Hargreaves Lansdown found that after an unprecedented period of low interest rates, 8 million Britons would now experience a rate rise for the first time in their adult lives.
While the response from the business community has been mixed – with some optimistic about the effect a rise could have on the sliding value of the pound – others, mainly in the SME community, are concerned.
Federation of Small Businesses (FSB) chairman Mike Cherry said that the rise will mean more pressure for SMEs already battling spiralling input prices and flagging consumer demand, believing it to be a threat to “investment, growth and job creation”.
“Only one in 10 small firms are currently applying for external finance and we have a chronic issue with permanent non-borrowers in the small business community,” said Cherry.
“Today’s rate increase could heighten the sense that borrowing is too expensive if you’re a small firm.”
Cherry added that the change could also be damaging for the relationship between a typical micro-business owner’s personal and business finance if it was to have an effect on mortgage and car leasing payments.
BPIF chief executive Charles Jarrold highlighted growing concerns with the general impact the increase will have on productivity and growth.
“From an industry perspective, we’re very dependent on the state of the economy, and it’s weak so interest rate increases are not helpful because we rely on growth,” Jarrold told PrintWeek.
“It’s a bit of a paradox at the moment. We’ve got inflation forecast at 3.2% in October, we’ve got the BoE responding by putting interest rates up and the economy growing at 1.7%, so it’s still really weak.
“The reason why the BoE is nervous is that unemployment is at a 42-year low so they feel that any growth over and above 1.5% will lead to higher inflation, which leads us back to the productivity issue.”
Launceston-based KCS Print managing director Terrye Teverson, whose company was highly commended in the SME of the Year category in this year's PrintWeek Awards, concurred with Jarrold on productivity issues.
“This is going to make it harder for people planning to invest in business because they are not only now going to be unsure of the economy with Brexit but now they have to contemplate an additional cost for borrowing money,” she said.
“So I would imagine investment in business will be held back and have a multiplier effect on productivity, which is something the government are stressing we’re very bad at.”
Andy Blundell, chief executive of £360m-turnover Communisis, was more positive and said that the “minor increase” in the cost of borrowing would be more than offset by the benefits his business would gain in transactional mail volume.
He added: “We will be working with our clients to transmit relevant information to their customers as quickly as possible and in accordance with regulation.”
Newly appointed Adare SEC chief executive Richard Slee also highlighted the move as “positive”.
“This is positive from Adare SEC’s perspective, we will be assisting a number of our clients to quickly send multi-channel communications out to their customers via print and email, ensuring they adhere to FCA regulations,” said Slee.
