26 June 2023

The Bank of England (BoE) raised interest rates by 0.5% on Thursday, as expected, in an attempt to control inflation. This is the fifth consecutive rate hike, and it takes the Bank Rate to 5%.

The decision to raise rates was not a surprise, given the continued high inflation levels. However, there is some concern that the BoE is using a blunt instrument to control inflation.

Inflation is currently running at 9%, which is the highest level in 40 years. This is being driven by a number of factors, including the war in Ukraine, supply chain disruptions, and rising energy prices.

The BoE believes that raising interest rates will help to cool the economy and bring inflation down. However, there is a risk that this could lead to a recession.

Bira CEO Andrew Goodacre Comments on Interest Rate Hike

In response to the BoE's decision, Andrew Goodacre, CEO of the British Independent Retailers Association (Bira), said:

"We expected the BoE to raise interest rates, but we are concerned about the impact this will have on businesses and consumers.

Raising interest rates will make it more expensive for businesses to borrow money, which could lead to job losses and a slowdown in economic growth. It will also make it more expensive for consumers to borrow money, which could dampen demand for goods and services.

We are also concerned about the difference in inflation rates for food and non-food. Food inflation is currently running at 9.5%, while non-food inflation is only 6.2%. This suggests that the supply chain on the food side is either not as efficient, or there is indeed some profiteering.

We urge the BoE to take a more nuanced approach to controlling inflation. It needs to focus on the underlying causes of inflation, and it needs to be mindful of the wider economic impact of its actions."

What Does This Mean for Businesses?

The rise in interest rates will make it more expensive for businesses to borrow money. This could lead to higher costs for businesses, which could be passed on to consumers in the form of higher prices. It could also make it more difficult for businesses to invest and grow.

The rise in interest rates could also dampen consumer demand. This is because consumers will have less disposable income to spend if they are paying more for loans and mortgages. This could lead to lower sales for businesses.

What Can Businesses Do?

There are a number of things that businesses can do to mitigate the impact of the rise in interest rates. These include:

  • Review their finances: Businesses should review their finances to see how the rise in interest rates will impact them. They should make sure that they have enough cash reserves to cover their expenses if sales decline.
  • Renegotiate loans: Businesses may be able to renegotiate their loans to get a lower interest rate. This could save them money in the long run.
  • Invest in energy efficiency: Businesses can save money on their energy bills by investing in energy efficiency measures. This could include installing solar panels or upgrading their insulation.
  • Pass on the cost to consumers: Businesses may need to pass on the cost of the rise in interest rates to consumers in the form of higher prices. However, they should be careful not to raise prices too much, or they could lose customers.

The rise in interest rates is a challenge for businesses, but it is not insurmountable. By taking steps to mitigate the impact of the rise in interest rates, businesses can continue to operate and grow.

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