On Thursday 22nd June, we saw the Bank of England increase the base rate for interest rates for the 13th consecutive time, with inflation remaining at 8.7% for the first half of 2023. In June, inflation rate has slightly dropped to 7.9%. The bank rate, set by the Monetary Policy Committee, now sits at 5%, an increase of 0.5%.
Since 2022, the interest rates have been increasing in the hopes of bringing inflation to 2%, however, this has not been feasible.
Interest Rate Soars
By increasing interest rates, it is hoped that inflation rates can stabilise. Inflation rates prior to June were at 8.7%, a striking comparison to the target of 2%. Not only does this mean that people’s pay cheques are stretched further, but it also slows economic growth.
By increasing interest rates, the Bank of England hopes that they can slow the rise in the cost of living. By making it more expensive to borrow money, people have less to spend and therefore demand decreases which will slow prices rises.
Since the end of June, inflation has slowed to 7.9%, which has started to relieve pressure.
World Inflation Rates & Interest Rates
Prices have increased worldwide – partly due to COVID restrictions easing, and the Russia Ukraine war.
During COVID, the world shut down which weakened the supply chain – causing prices of energy and food to rise, triggering the cost of living crisis.
Although this is partly a global issue, inflation is also impacted by domestic elements such as rising wages.
Impact on Business
Unfortunately, the rise in interest rates will impact businesses. Firstly, business loans interest rates are increasing, which could make it harder for businesses to pay them back. These higher borrowing costs could also erode profit margins.
With less disposable income to spend, consumers will be shopping less meaning a lower demand for goods and services. And, with suppliers increasing their prices, it may force businesses to increase their own prices.
To tackle this, it’s important to revisit business plans to see if there is any flexibility for goals to prevent debt. If possible, having contracts in place with suppliers to fix supply prices can mitigate the risk of losing money.
The central bank will continue to monitor indications in the economy, adjusting the bank rate accordingly. The next base rate announcement will come next month on 3rd August 2023, from the Bank of England.
If your business is struggling to navigate the new interest rates, James & Uzzell can offer accountancy and consultancy to help you get business back on track. Contact us at 01792 799 100 or email us at firstname.lastname@example.org for more information.