SMEs buoyed by news interest rates will remain low
Small and medium sized enterprises (SMEs) operating in the UK are likely to be celebrating after announcements that interest rates would remain at their record low of 0.5%.
First introduced in 2009, the Bank of England has kept the interest rate at a record low of 0.5% for more than six years and is hoping to continue this trend for more to come.
In fact, when asked to vote on proposals to raise interest rates a massive 8-1 majority was recorded in favour of retaining the existing low rate and stopping increases.
Are low interest rates a good thing?
Although there are some that believe interest rates should be increase, such as Ian McCafferty: the only member of the Monetary Policy Committee (MPC) who voted to up interest rates, maintaining them at their current level good spell good news for businesses.
Lorence Nye, who works for self-employment body IPSE, explained that holding interest rates at their historic level has helped improve economic performance – but there is still more to be done.
As the country remains short of the Bank of England’s target inflation rate of 2%, Nye argued that the MPC was justified in their decision to be “cautious about increasing rates in the immediate future” – even though many previously expected them to announce rises early next year.
For businesses, low interest rates can make financial management easier with the cost of borrowing money and financing products lower.
The fact that many sectors have experienced job and wage growth over recent months adds further evidence for this as it means people essentially have more money while goods cost less.
This could make customers more likely to spend their money and support growing SMEs and organisations in the process.
However, while the vote to retain low interest rates could be seen as a good move for businesses it is important that entrepreneurs don’t get ahead of themselves.
Careful financial management is still needed to ensure the stability and security of firms who need to spend money to grow but want to ensure they don’t risk insolvency in the process.
While insolvency advice and other forms of business recovery can help businesses get over issues with money, SMEs are keen to avoid this action and would do better to carefully manage their current finances even in light of the Bank’s announcements.
By Phil Smith