Interest rates are on the rise, good for savers, bad for borrowers.
26 October 2022: Interest rates have been unusually low since the financial crisis in 2008. This created one of the cheapest ever times to borrow money. This was great news for borrowers but terrible news for savers…until now.
The low rates will no doubt have created some of the most casual approaches to borrowing from those that have not experienced higher interest rates before. Pre financial crisis interest rates peaked at 5.75% in 2007. For those that remember much further back to the previous peaks of almost 15% in the late 80s/early 90s and 17% in the early 80s make the current situation pale into comparison.
One of the big drivers of interest rate changes is inflation. When inflation is high, one of the Bank of England tools at its disposal is to push up rates to try to decrease spending which in turn creates less demand. This happens because people tend to be more cautious when times are hard and try to save rather than spend. As spending decreases, demand for goods and services falls, and the pace of price rises slows thereby reducing inflation. The Bank of England’s target for inflation is 2% and they will adjust interest rates accordingly until we get back to target.
For business owners who rely on borrowing to support their cash flow, be that in the form of overdrafts, loans, asset/debtor finance or credit cards then the cost of that finance will, in turn, rise. This creates a greater squeeze on cash and without proper planning or management can be the straw that breaks the camel’s back.
Whilst we are not monetary policy experts, we do understand the pressures businesses face. If you are in business and unsure which way to turn next, be that as a result of a lack of cash, disruption in supplies, historic Covid debt or for any other matter, then please do pick up the phone to any of the management team at BRI Business Recovery and Insolvency. We always offer a free of charge, without obligation and confidential chat to discuss your position and talk about the options available to you so that we can help you to stay in business and fight another day.