UK business groups have described the Bank of England’s interest rate rise as ‘ill timed’ as it will only pile on more pressure to SMEs already struggling with debt repayment burdens
The Federation of Small Businesses (FSB) and the British Chamber of Commerce (BCC) have both expressed concern over the announcement from the Bank of England (BoE) yesterday, which increased interest rates to 0.75%.
The groups stated that the move will mean higher debt costs for many businesses as they try to continue to fight through the economic consequences of the pandemic with the BCC stating that the move was ‘ill-timed against a backdrop of growing domestic and global headwinds’.
In a statement released by the FSB, national chair Martin McTague stated that SMEs were being constantly ‘undermined by a vicious cycle of rising costs’ as they try to make up for the time lost over the last two years of the Covid-19 pandemic.
The BCC stated that while interest rates remain low ‘by historic standards’ the latest rise will be viewed by many as a further step in the ‘prolonged period of aggressive monetary tightening’ at a time when consumers and businesses are struggling as increasing the interest rate will do ‘little to curb the global causes behind this inflationary surge’.
The BCC added that the move will only ‘damage confidence’ and ‘deepen the financial squeeze on consumers and businesses.
In a statement released by the FSB, McTague said: ‘A lot of small firms have had no choice but to increase prices in response, but this isn’t always an option, especially in sectors still trying to entice customers back, such as hospitality and tourism, and their suppliers.
‘At the same time, consumer confidence has plunged and the cost-of-living squeeze has intensified, with record fuel prices and sky-high utility bills meaning loss of disposable income.
‘Small businesses increasingly feel that the Government is indifferent to the cost pressures they face.
‘The planned hikes to national insurance and dividend taxation taking effect in a matter of days, alongside an income tax threshold freeze, will, for many, be the final straw.’
Both the FSB and the BCC have urged the Chancellor to consider this when he releases his Spring Statement next week with the BCC stating that it is vital for the Chancellor to priorities ‘the escalating cost of doing business’.
The BCC called on the Chancellor to delay the National Insurance Increase (NIC) and to introduce a temporary energy price cap for small businesses.
Suren Thiru, head of economics, at the BCC: ‘This would give firms the headroom to keep a lid on prices, protect jobs and make an investment that is so vital to sustaining our economic prospects.’
As well as support for rising energy costs, the FSB calls for an increase in the Employment Allowance and a rise in the business rates relief threshold on rates.
The FSB also stated a ‘pay as you grow’ option on other state-loan-backed schemes to allow businesses to spread the pressure of their debt repayments.
McTague concluded: ‘We urgently need to see the Chancellor ease the pressure on the five and a half million small firms and sole traders on which our recovery will depend.’