UK interest rates rise for the first time in 10 years – despite fears of impact on struggling firms

Liverpool accountancy firm boss Peter Taaffe says the Bank of England’s quarter point rise to 0.5% will impact on both small businesses and homeowners. Tony McDonough reports

Peter Taaffe, managing partner of BWM

 

Bank of England policymakers have raised the UK interest rate for the first time in a decade – pushing up the rate from 0.25% to 0.5%.

The bank’s Monetary Policy Committee made the decision despite warnings that a rise could make life more difficult for struggling businesses.

In distress

On Wednesday, insolvency experts at Begbies Traynor warned that 3,280 businesses in Merseyside were experiencing “significant” levels of financial distress in the third quarter of this year – a 25% rise on the same period last year.

Many are being kept afloat by the availability of cheap credit and it is feared even a small rise in interest rates could tip some over the edge.

John Fairbrother, regional managing partner at Begbies Traynor in Liverpool, said: “Businesses in search of growth have overstretched themselves, taking too many risks after being lulled into a false sense of security by the continued low interest rate environment.”

Brexit worries

Peter Taaffe, managing partner of Liverpool accountancy firm BWM, says this rate rise, piled on top of the worries already created by the impending Brexit, could deepen the gloom.

“Businesses in Merseyside showed they were more resilient during the last recession than in previous ones and that is a positive sign.

“However, there is a limit to how far we can push. There are signs the uncertainty around our withdrawal from the EU is already causing some to hold back on investing in their businesses.

The Bank of England’s Monetary Policy Committee has pushed interest rates up to 0.5%

 

“Recent figures from the ICAEW show that more than one in four businesses are delaying investment decisions as the Government continues negotiations with the EU.

“A rise in interest rates, albeit a small one, gives firms just one more reason not to invest at a time when we need economic growth more than ever.”

Under pressure

Begbies research showed that ‘significant’ financial distress rose across nearly every sector in Liverpool with firms in the travel and tourism sector worst affected, increasing 80%.

Telecommunications companies experiencing ‘significant’ financial distress also rose, with 55% of firms struggling during the third quarter of the year.

Mortgage rise

Mr Taaffe says the rate rise will hit homeowners on variable rate mortgages. A borrower with a £200,000, 25-year term loan on a standard variable rate of 4.5% will see annual payments rise £330 a year.

“Millions on tracker mortgages or standard variable-rate mortgages — which are typically higher than fixed-rate deals — will see their loan costs rise before Christmas,” he added.

“We are now just weeks away from the chancellor’s first autumn Budget on November 22, and this rise increases the political pressure to help those who are ‘just about managing’ as real incomes are squeezed.

“That said, the rise in consumer borrowing and the upward pressures on inflation did, in themselves, make a compelling case for this rate rise.”

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