Borrowing costs

UK businesses are starting to worry about rising borrowing costs

(Bloomberg) – The prospect of further interest rate hikes is increasingly worrying British businesses, posing a risk to the highest levels of business confidence in five months.

The Lloyds Bank Business Barometer, published on Monday, found that half of 1,200 businesses surveyed plan to raise prices over the coming year to cover rising payrolls and other expenses, intensifying the cost of living crisis facing households.

The responses revealed companies’ sensitivity to historically modest increases in the cost of borrowing. Four in 10 said they would be concerned if the Bank of England raised rates to 1%, a level markets expect to reach by May. A 2% rate, forecast by traders over the next year, would set off alarm bells for six out of 10 people.

Many responses were received after the BOE raised the benchmark rate to 0.5% on February 3 in a bid to contain inflation, which is expected to reach 7% by April, more than triple the target rate. by policy makers.

For now, business confidence is broadly rising across all regions and sectors, and more than half of companies plan to increase their workforces, Lloyds said.

However, it remains to be seen how resilient sentiment is in the wake of Russia’s invasion of Ukraine, which boosted oil prices and clouded global growth prospects.

The Lloyds survey suggests that workers are facing severe pressure on their standard of living. While a quarter of companies forecast wage growth of up to 3%, this is less than the rate of price increases.

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