The Bank of England has raised interest rates to their highest level in 13 years as it looks to tackle the cost of living crisis gripping the UK.
It announced an increase from 0.75 per cent to 1 per cent on Thursday, a level which has not been seen since the aftermath of the financial crisis in early 2009. The Bank of England’s Monetary Policy Committee (MPC) voted in favour of the rise with six votes to three.
It was the fourth time in a row the committee has voted in favour of an interest rate increase, as the UK struggles with soaring inflation driven by rising energy costs.
In its report yesterday (May 5) it also warned the economy will go into reverse and inflation- will peak at more than 10 per cent as the Ukraine war compounds crippling living costs.
Responding to increase, which follows the release of ONS figures showing that 16% of microbusinesses are still not currently fully trading, compared to only 3% of big businesses – Federation of Small Businesses (FSB) Chair Martin McTague said:
“Small businesses are caught between a rock and a hard place: spiralling operating costs on one side, rising personal and professional debt costs on the other.
“The hope is that today’s move goes some way to putting the brakes on input price inflation in a way that hasn’t been achieved by previous rate rises, mitigating the pain of higher debt repayments.
“When we spoke to members over the first lockdown, the majority were carrying debt, and four in ten were concerned that their debt was now ‘unmanageable’.
“Those with bounce-backs are rightly protected with a fixed rate on those facilities, but a lot of the wider personal and professional loans that small businesses and sole traders hold will move in line with the increase today.
“Consider the electrician who is trying to manage surging fuel prices and the costs of supply chain disruption at work, whilst also being hit by spiralling utility bills and, now, higher mortgage repayments at home.
“Microbusinesses are especially hard-hit by the cost of doing business crisis. Energy costs are particularly difficult to manage, as they are not eligible for the relief offered to consumers, and don’t benefit from the leverage that big businesses can bring to bear. As these new figures show, their fight to bounce back from Covid is that much greater than for a lot of big corporates.
“Those with coronavirus business interruption loans will be feeling particularly apprehensive after today’s increase, which is why we’re urging government to extend Pay As You Grow options to CBILS customers to ease at least one of the mounting pressures they face.
“We’re also encouraging policymakers to look again at our debt for employee equity proposals, giving the minority who are really struggling to repay bounce-backs the option to convert to an employee ownership trust model – protecting livelihoods, improving productivity and protecting taxpayer funds in the process.
“This is a moment for the banks to step up: helping their small business and sole trader customers to manage the effects of rising rates responsibly. Widespread collapse is not good for anyone long-term.”