Interest Rate rise – How could it affect you?
Following The Bank of England’s announcement that interest rates were going to rise for the first time since 2007, UNW’s Tax Senior Manager Tim McElwaine discusses the potential impact this may have on businesses operating in the UK.
On the 2nd November, it was announced that interest rates in the United Kingdom were to rise for the first time in over a decade. The increase, from 0.25% to 0.5%, is the highest rate registered since the financial crisis of 2008.
Mark Carney, the governor of The Bank of England, states that he expects all providers to increase returns for savers. As of now, many banks are still considering whether to pass on the benefits, and there have also been reports that savers will still find themselves worse off than when the interest rate was last at 0.5%.
There are also conflicting reports for what the interest rate rise may mean for business owners, with suggestions that it may hamper smaller businesses opportunities for growth. With the rate rise sure to affect borrowing, smaller businesses may be further put off something that they already see as too expensive.
Tim McElwaine, Tax Senior Manager at UNW, believes the interest rate rise suggests that the economy did not enter the state of emergency that The Bank of England first feared after the Brexit referendum result: “It seems a bit odd to be increasing the interest rate just as economic indicators are suggesting a tailing off in growth. This could be explained by the current low levels of unemployment and the fact that inflation is above target, and for those who remember the 1990’s, 0.5% is still a very low interest rate.
“Despite the negativity surrounding what the interest rate rise means for business owners, there are positive signs for those confident about the future. Borrowing is still very cheap by historical standards, and businesses with existing borrowings may want to lock themselves into the current low rates. Currently, all the signals seem to suggest that further rate rises are likely to be ‘gradual and limited’ over the next few years.
“The increase is likely to increase the Government’s cost of borrowing slightly, but I suspect the Chancellor is likely to have more pressing matter on his mind as he finalises his plans for the Autumn Budget coming up on 22nd November, such as calls for an easing of austerity, and combatting the poor levels of productivity growth over the past decade.”
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