Interest rate rise possibilities not a concern for SMEs
The prospect of an interest rate rise in 2015 is not a concern for the majority of the UK’s small businesses, new research has found.
A survey from the Institute of Chartered Accountants in England and Wales (ICAEW) found that 78% of SMEs think rate rises will not adversely affect their businesses.
Small businesses make up 99% of all private sector business in the UK and roughly 60% of private sector employment, according to the Federation of Small Businesses.
The ICAEW suggests that many of them are protected from a rate increase as they have built up significant cash cushions which would mean they do not need to borrow.
Of those who were not concerned about the current rate increasing – it’s been at record low of 0.5% since March 2009 – 86% were cash positive.
Many businesses remain resilient yet cautious in the current climate and this has led to them stockpiling funds to cope with any possible negative impacts. The ICAEW poll showed 71% of businesses with concerns were worried about potential impacts to consumer spending and how prices would have to change as a result.
Should an increase in interest rates hit a company particularly hard, then a company voluntary arrangement or an alternative insolvency procedure may be required.
This would require quick action to limit the impact before any assets could be managed or sold to get finances back in order.
A separate report from PwC has revealed it expects the UK economy to grow by 3% in 2014 before slowing to 2.5% next year. Consumer spending is also expected to strengthen, although the report did highlight that this growth could be limited.
Interest rates could be kept at their current level for some time yet though as economists have suggested that weak wage growth and subdued inflation could slow any activity. The General Election in May could also influence a change as Bank of England Governor Mark Carney has expressed his desire to ensure that rate increases are not used for political ends.
Long term interest rate growth is still expected though and could be as high as 4% by 2020; meaning businesses should already be considering the future.
By Phil Smith