The interest rate announcement from the Bank of England March 22nd has done nothing to boost the optimism of UK business owners. On the back of a higher than expected CPI inflation rate of 10.4% in February, the quarter point hike last week wasn’t surprising but it was disappointing and given the mixed bag that businesses got from the spring budget, the outlook for 2023 will be concerning for many. 

Is that the end for Interest Rate hikes?

Well, the government has not ruled out more rate hikes, should inflation not play ball and continue to come down as expected. Persistent, elevated inflation is bad news for businesses and for economic growth and the government is committed to getting it under control with the fiscal tightening measures available to them. Although inflation has decreased from the 40-year high of 11.1% in October, it’s still more than 5 times higher than the target rate of 2% and the worry is that domestic pressures are now making it stick around longer than expected. 

The ideal scenario for the economy is to avoid any further rate rises as prices start to fall more quickly through the coming months. Some of the measures announced in the Spring budget were intended to alleviate many of the price pressures still being felt on a domestic level. A revised, discounted energy price agreement and initiatives to get more of the inactive labour force back into work, should support businesses in holding their costs steady and open up more skilled labour to them; which should, in theory anyway, avoid any further upwards wage pressure. Businesses holding off on investment have likely added to inflationary troubles as well, so the budget has tried to address this through a range of strategic tax incentives aimed at getting businesses back to investment and growth. 

UK finance minister Jeremy Hunt said last week that the UK will narrowly miss entering a technical recession based on new forecasts from the Independent Office for Budget Responsibility. With everything being said and these predictions that UK GDP will fare better than anticipated, coming in flat or slightly down overall in 2023, there is hope that we may have seen the last of the interest rate rises. 

Viable Businesses Must Succeed

The economic contribution of the 5.6 million UK SMEs can’t be overstated. It’s imperative that they get the support they need to sustain viable businesses in the face of continued uncertainty and higher short-term costs. The cost of servicing debt just got bigger once again and while there might be some reprieve from growing costs elsewhere, the next months will be crucial for business owners who are really only just exposed to the full after-effects of the pandemic. 

Accounting web reported a 32% increase in insolvencies in December year on year, which they attributed to a build-up post-Covid. Businesses had been shielded from the worst case scenario by government support but now have to repay pandemic debt alongside dealing with rising wage and energy costs, Brexit and ongoing economic turbulence. Colin Haig of business advisory firm Azets, voiced concern that management is often not facing cash flow problems sooner and once in a downward spiral, it’s very difficult to come back from; liquidation can then be the only option when it doesn’t have to be that way. 

Whether embarking on the next stage of business growth or trying to navigate tough times and maintain cash flow, Sallyport are here to support UK SMEs with the finance they need now to weather the storm and be able to take advantage as conditions improve later this year into early 2024. Contact our experienced team today.