Posted: 08 / 08 / 2022
Article by Leyton Jeffs, Funding Partner at Sedulo
On the 4th August 2022, the Bank of England (BoE) raised the base rate from 1.25% to 1.75%, as widely predicted. The rate was increased again due to the annual inflation rate sitting at 9.4%, the highest level for 40 years.
Furthermore, The BoE is now predicting that inflation will exceed 13% in Q4 and therefore expecting to make further hikes in base rate to help tackle inflation.
The current forecast expects the BoE rate to rise above 2% by the end of 2022 and above 2.65% by the end of 2023.
What does it mean for business owners?
In simple terms, it means the cost of borrowing money increases.
The 0.5% increase means that for every £100,000 you borrow you will ordinarily pay an additional £500 a year in interest costs. That is just the last increase. Rates have risen from 0.1% to 1.75%. That increase of 1.65% means borrowers are paying £1,650 a year more for every £100,000 and as rates continue to rise, so does the cost of borrowing!
Watch: How inflation works…
What can business owners do about it?
First of all, when borrowing rates increase, it is important to look at your finances and if there is a need to borrow money.
If it is for working capital, can you stretch creditors, or get debtors to pay you more quickly? This may eliminate or certainly reduce the amount of money you need to borrow.
If you’ve exhausted this already, it makes it even more important that you get the right finance to serve your needs and at the best possible cost. As we know that rates tomorrow will likely be more expensive than they are today, effective future planning is important.
If you know you are going to need to finance your plans in the next 12 months, looking at finance today is very worthwhile. Fix your borrowing at today’s rate and not the rate in 12 months time!
Do you think you will be affected by the increase rate increases? If so, message me back to arrange a virtual coffee chat!