The Bank of England has increased the Base Rate to curb inflation. What does this mean for your business?

June, 2023

The BoE has raised the base rate to 5% as inflation continues to soar.

Why are rates increasing again?

The BoE has increased the interest rate in a bid to combat high levels of inflation. Our current rate of inflation, last reported at 8.7% in April, is at its highest point in 40 years.

The primary concern from the money markets is that higher prices are becoming embedded across the UK economy. A greater demand for goods following Covid restrictions and the impacts of the Russia-Ukraine conflict saw prices rise rapidly.

As demand increased, businesses struggled to get enough stock, leading to consumers chasing a shortage of goods, causing prices to trend upwards. The concern from the Monetary Policy Committee is that prices are not stabilising quickly enough.

The MPC is charged with setting the Bank of England base rate to try and keep inflation stable. Since inflation started to balloon in December 2021, the Bank of England has increased interest rates thirteen times. It is hoped the most recent increase to 5% will ease pressure on the UK economy.

What does it mean for my business?

Small and medium sized businesses rely on external finance for growth and investment. Higher interest rates mean higher borrowing costs. Increases in the cost of borrowing can make it more difficult for small businesses to build up the capital they need to thrive.

In addition to rate increases, high levels of inflation mean consumers have less disposable income to spend, so businesses could see a drop in revenue.

What steps can I take?

There’s no doubt borrowing costs are higher than we have seen for some time, but there are lots of options available to business owners.

We asked Pilot Fish CEO, Richard Jones, what businesses can do to protect performance.

“Businesses should take practical steps to protect cashflow. Put together a cashflow forecast so you can identify any potential shortfall and take action as early as possible. Understand your cashflow projections and the impact of any fluctuations.

Check your business debts and credit facilities and understand how they will be impacted by the rate rise. If you have multiple facilities, speak to an advisor to see if you can consolidate debt.

Consider if you have assets available (invoices or property) that can be used to back your borrowing. Additionally, explore moving to fixed rate products where available, which will allow you to plan and fix business outgoings.  

My bank has said ‘no’ does this mean I can’t get funding?

Uncertainty in the market means high street banks are reigning in some of their lending criteria and pulling out of certain sectors.

We work with a huge panel of lenders, from high street banks to alternative lenders to lenders who only lend on certain products or to niche sectors. We’ve seen the gap in the cost of funds between high streets and alternative lenders close significantly in the last few years so it’s more important than ever to explore all options.

Our advice to business owners is to seek advice as early as possible. The earlier you explore your finance options the more options will be available to you. We offer complimentary business finance reviews where our specialists will assess your circumstances and advise on the most suitable options.