In response to the current cost of living crisis, the Bank of England has increased interest rates for the third time in a row.
The soaring inflation rate has been applying pressure to both households and businesses, which has resulted in the action to hike interest rates to 0.75 per cent – the highest level since March 2020.
Inflationary pressures including the rising energy bills and food costs, amidst the impact of the Russian invasion of Ukraine have resulted in costs rising across the UK.
The inflation rate (in the year up to January) stands at 5.5 per cent, which is the highest level for 3 decades, however it has the potential to hit eight per cent or higher soon, the Bank of England has warned.
How can businesses adapt to elevated interest rates?
The volatile prices across the UK economy may paint an unsettling image for businesses, however there are steps that can be taken to ease the impact.
With interest rates affecting the value of the pound, as well as current sanctions on Russian imports, it may be worth evaluating whether areas of your supply chain are likely to incur different costs and preparing for this scenario.
Another consideration is that the heightened interest rates may curb consumer spending in your industry, as well as increasing the cost of borrowing (for example on credit cards or loans).
Due to this, it is important to refer back to your business plan to try to minimise the impact of this on company growth.
Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC) commented on the rate increase:
“Increasing interest rates will do little to curb the global causes behind this inflationary surge and risks intensifying the headwinds facing the UK economy by damaging confidence and deepening the financial squeeze on consumers and businesses.
“Instead, the focus should be on using next week’s Spring Statement to tackle the escalating cost of doing business crisis by delaying the national insurance rise and introducing a temporary energy price cap for small businesses.”
If you require support with related matters, contact our experts today.