Time to Think About Whether You Can Cope with a Rise in Interest Rates

Next year, the Bank of England is expected to begin to lift the base rate of interest from its all-time low of 0.5%. It’s going to have quite an impact on the finances of the nation. While savers will welcome it, borrowers will be hit with a rise in repayments. Businesses will mostly sit in the latter camp.

According to a survey carried out for the financial risk management firm, Company Watch, over a quarter of the UK businesses in its 500 strong sample have not even thought about planning for it. Your outsourced bookkeepers will have noted what the others are expecting and what they plan to do about it.

What the First Rise Might Be

It seems that some people believe the rise could be as much as 0.75% and are adjusting their financial business panning accordingly. Others are preparing for a 0.5% rise while an equal number think they only have to plan for a 0.25% rise.

How Can the Extra Costs Be Accommodated

How they will address the added pressures on their finances also varies. While some said they would try to get a better deal with a different lender if their bank debt payments start to spiral, a much larger percentage say they are already discussing terms to lock-in their current debt arrangements. Half of those trying to plan for these eventualities intend to increase sales and generate more revenue that way. A third will be looking at how to cut other costs, but only 3% said they would pass on the extra costs to their customers.

The Knock-on Effects

Emma Caister is Strategy & Business Development Director at Company Watch. She said, ‘Clearly with many companies in the Company Watch survey still feeling the effects of the long recession, even a small increase in debt costs might end up having a big impact on the strength of their businesses. We believe it’s sensible for companies to understand not only what higher interest rates might do to their own businesses, but also to examine what the impact might be on the financial health of their main suppliers and customers.’

Even if you don’t have bank debt that will be affected, people you do business with might, and there are plenty of angles connected with the probably interest rate rise that need to be considered. Your outsourced bookkeepers could be the best source of advice, support and inspiration for how to keep your business on an even keel when the Bank of England raises the base rate.

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