Borrowing costs

Rising borrowing costs “could be the last straw for ailing businesses”

While the economic impact of last week’s interest rate hike on businesses is likely minimal, the uptrend portends trouble, predicts Richard Churchill, partner at Blick Rothenberg tax and consulting firm. .

“Although interest rates are still exceptionally low at 0.25%, the message he sends to business owners is a clear message that further interest rate hikes are likely and debt will be higher. dear, “said Mr. Churchill.

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He pointed out that many companies have so far survived on cheap loans.

Businesses could see the cost of borrowing rise next year if further interest rate hikes are announced. Photo: Jon Savage.

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“If the cost of borrowing increases for companies facing increased economic uncertainty from the coronavirus, especially those in the hospitality and leisure sectors, then escaping the current financial gloom may seem impossible,” he said. -he adds.

Mr Churchill said that many factors influencing inflation are macroeconomic, and he believes that rising interest rates in the UK are unlikely to have an impact on inflation without others. increases in the future.

He also said it was clear that the main drivers of the current surge in inflation are the global shortage of goods, rising transport costs due to Brexit and shortages in the labor market.

“These factors have a much bigger impact on inflation and the UK economy. What the UK government needs is clear leadership and action to actively tackle these issues. If this is done, companies will feel they can absorb the rising interest rates, inflation will start to drop, and future interest rate hikes will become less likely.

The 0.1% hike last week marks the first rate hike since August 2018 and only the third since the financial crisis.

Pressure

Members of the Monetary Policy Committee voted eight to one to hike rates after pressure was put on the Bank of England to bring soaring cost of living under control.

In the minutes of the decision, the bank warned that inflation could now peak at 6 percent in April, while lowering its growth outlook to 0.6 percent in the fourth quarter from a previous forecast of 1 percent.

He said: “Most of the committee felt that an immediate small increase in the discount rate was warranted. The decision at this meeting was finely balanced due to the uncertainty surrounding the Covid developments.

“It was interesting to await further information on the extent to which Omicron was likely to escape the protection of current vaccines and the initial economic effects of this new wave. However, there was also a strong case for tighter monetary policy now. , given the strength of the current underlying inflationary pressures and in order to maintain price stability over the medium term. “

Analysts from the Center for Economics and Business Research said there were few signs of the price pressures that prompted the decision to subside and he expected the main drivers of inflation, including difficulties in global supply chains continue into the new year with multiple rate hikes expected. in 2022.

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