Last week, The Bank of England announced it was raising interest rates to 0.75%, the highest level for almost a decade. The move is set to generate increases in lending costs and was the first unanimous decision on interest rate rises since 2007. Wage rises are also likely to occur after the 1% public sector pay cap was dropped. The Bank of England said the 0.25 percentage point increase was “warranted” in order to “return inflation sustainably to the target”, saying future increases would more than likely take place gradually.
Plan around interest rate rises
As we all know, businesses depend on healthy economies in order to flourish. Interest rates can help companies but can also be incredibly damaging if effective plans aren’t in place. It’s advisable to do all you can to protect yourself from the negative aspects of interest rate changes and make the most of the positive factors. Rises in interest rates often means being charged more for loans that you have taken out for your business, therefore reducing your profits. When interest rates rise, businesses also often decide to postpone new projects and initiatives, hampering the growth of their company. And of course, when rates are low, it makes more sense to borrow to boost your growth and it becomes easier to turn over a profit even when paying interest on a loan. A lift in interest rates can sometimes cause a knee-jerk reaction in business which is unnecessary. With a good plan in place, you can take interest rise hikes in your stride and we’re here to show you how.
How interest rates affect sales
There’s no denying that a business can lose custom when interest rates are high. The more interest your customers are paying on loans, the less money they have to buy products and services, it’s as simple as that. This is the case whether you sell to members of the public, other businesses or both. Many businesses opt to put money into interest-bearing accounts when interest rates are high in order to make more money whereas they are more likely to spend their cash on resources such as new equipment and other resources when they are low. The thing to remember is that despite this increase, interest rates are still incredibly low so don’t get too distracted by it. There are still many things you can do to grow your business.
Need help sourcing finance?
Another aspect of an interest rate hike is that banks often become more cautious. Banks are less likely to lend to you if they don’t expect to make a worthwhile profit by doing so. There is always a risk attached to lending out money, which is why so many struggling companies and start-ups find it so hard to secure the cash they need for investments. In some cases, you may also find it tough to obtain short-term loans to solve cash flow problems. This can make it hard to provide customers with the products and services they require and keep your business moving forward. We can show you how to navigate this sometimes unpredictable landscape.
Why Morgan Reach?
At Morgan Reach, we can come to your assistance if you need help with financial planning for your business. We are able to provide accounting services for companies from a wealth of sectors and are passionate about helping you increase your bottom line and optimising your business performance. We are business advisors that can offer strategic planning for your future and make your enterprise more profitable. All the advice we provide is tailored towards your specific needs and circumstances. We can also help businesses find the best finance solutions with the help of our trusted partners.
Do you have concerns about the recent increase in interest rates? To find out more about how you can plan effectively for your business, simply contact us via phone or by using the contact form on our website.
DISCLAIMER: This article is for guidance only, and professional advice should be obtained before acting on any information contained herein. Morgan Reach Chartered Certified Accountants cannot accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the content of this article.