Businesses and consumers had been warned that interest rates might rise at the end of February, but this has been put on hold by the Bank of England and moved to a May deadline. For now, interest rates will remain at 0.50%, but it’s unlikely to stay at this level for very long.
For businesses, rising interest rates can mean paying more for overdraft facilities and loan repayments. It can also make banks and lenders even more reluctant to lend in the first place, so some businesses will spend on credit cards because they’re more accessible, but still end up repaying at a higher rate of interest.
Customers will be affected too, as their debts will be more costly, so they may reduce their spending.
Why Are Interest Rates Likely to Increase?
The Bank of England’s monetary policy committee (MPC) voted to keep interest rates as they are, but the City thinks there’s “a 75% chance of a rate hike in May”.
Interest rates are usually influenced by demand for credit and inflation. If inflation continues as it’s projected, the Bank of England will act until “inflation returns sustainably to its target”.
What Does it Mean for Small Businesses?
When interest rates rise, it can become more difficult and more expensive to borrow money from the banks and other traditional lenders. However, there’s alternative options which are available to business owners. Products with fixed interest rates or fees guaranteed for the full length of repayment are a great option to consider.
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