The UK’s central banking institution has raised its national interest rate after months of debate. Find out the implications of this historic move here.
What’s changed for UK interest rates?
On November 2nd, the Bank of England’s Monetary Policy Committee (MPC) announced its decision to raise its national interest rate by 0.25%, meaning that – at the time of this article’s writing – the base rate now stands at 0.5%. It marks the first such hike on the part of Britain’s central bank in a decade: after interest rates reached 5.75% in July 2007, they tumbled to 0.5% as the financial crisis hit in 2009 and 0.25% shortly after last year’s EU referendum.
The move has seemed a long time coming to many analysts, particularly after an extensive period of public discord amongst the membership of the MPC. Some of the financial experts on the Committee claimed that recent hikes in inflation justified a proportionate hike in interest rates, while others believed that the UK economy’s present instability in the midst of Brexit uncertainty meant the panel should exercise restraint until the early months of 2018.
But given that the Bank traditionally aims to keep Consumer Price Inflation (CPI) at a steady level of 2% and given that – according to the Office for National Statistics – UK CPI stood well above this figure at 2.8% in September, the rationale behind their decision makes sense in terms of their long-term goal to help stabilise national finances. Indeed, the Bank of England’s Inflation Report for November predicts two further rises of at least 0.25% between now and 2019, with the ultimate intention of capping the base rate at 1% come 2020.
Will the new interest rate affect my business?
As with any marked shift in Britain’s financial status quo, the answer to this question will vary considerably from business to business depending on a number of key factors. Certainly, those companies operating within the retail sector should brace for a challenging start to 2018; the Guardian’s Phillip Inman and Richard Partington predict that consumers will face rising borrowing costs from traditional banks in the months ahead, which they say could “curtail consumer spending” over the course of the expensive Christmas season and beyond.
This doesn’t necessarily mean that increased borrowing costs will adversely affect businesses on a more widespread level. For instance, anyone taking out a loan during this quarter should keep a close eye on their chosen facility’s Annual Premium Rate (APR): while some loans will carry a variable APR that can shift in parallel with interest rate hikes such as this one, others carry a fixed APR that will remain at a constant pre-agreed level throughout the loan term.
Similarly, the situation for those companies who’ve taken out mortgages on commercial properties is by no means set in stone. As per BBC News, 43% of property owners are currently paying back their mortgages based on variable or tracker rates, which – like APRs – fluctuate in line with the Bank of England’s base rate, whereas 57% of mortgages involve fixed rates that again will allow businesses and homeowners to continue making payments at the same level for the foreseeable future.
In some respects the Bank’s controversial ruling could actually serve to benefit businesses in the long run, as daunting as the ramifications mentioned here so far may appear. BBC News’ Brian Milligan says the 45 million Britons currently in possession of a savings account will soon see “higher returns” thanks to the hike in the months ahead, a revelation which will doubtless seem welcome to businesses in an era when – according to the Telegraph – none of the 750 savings accounts traditional banks offer are currently outpacing inflation.
Now might also mark an ideal time for companies to encourage their employees to link their pension scheme to an annuity. “Annuity rates follow the yields – or interest rates – on long-dated government bonds, otherwise known as gilts,” Brian Milligan explains. “With the expectation of rising base rates, these yields have also been rising, giving retirees better value for money when they buy an annuity.”
What’s more, it’s important for businesses concerned by the hike to keep in mind the opportunities that lie before them right now. As we revealed in our September analysis of GBP’s freefall, the pound’s spiralling value has made the prospect of exporting goods much more attractive to many UK firms and indeed to the international firms receiving them at a far lower cost. This radical upsurge in export demand won’t last forever, particularly if interest rates continue to rise as predicted, but the current 0.5% bank rate shouldn’t deter businesses from trying their hand at selling goods abroad.
How we can help
Alongside this article, Touch Financial’s online Knowledge Centre plays host to a range of blog posts such as how SMEs and large-scale firms alike can survive the present financial challenges facing them, interest rate hikes included. Be sure to browse our other content from recent weeks, since we’ve already afforded extensive coverage to related issues like the late payments crisis and how to overcome the numerous obstacles hindering SMEs this quarter.
Meanwhile if you’re considering taking out an Unsecured Business Loan, then we’re pleased to confirm that we’ve now incorporated this product into our wide range of financial services. Our expert consultants can help you examine the various APRs offered by our esteemed panel of lenders in order to ascertain which best befits your business’ scope, ambitions and its ability to continue repayments should the Bank of England soon shift its interest rate once again.
Alternatively, if your business needs a cashflow solution detached from base rates, then you might consider pursuing invoice finance instead. This popular funding solution allows businesses to access a high percentage of their invoices’ value long before their customers pay up, often within as little as 24 hours of the invoice(s) being raised. Again, our consultants are well-equipped to find you a suitable funder with knowledge of your industry and cashflow needs, thereby allowing your firm to generate working capital, maintain or grow its operations.