Brexit Delays Interest Rate Hike, But Firms Should Prepare Finances

20th April 2018.

The governor of the Bank of England has said that an interest rate hike is “likely” this year, but any increases will be gradual. As a result, businesses should be prepared and become more conscientious with their finances.

Investors and City economists had widely predicted that the Bank would raise interest rates from 0.5 percent to 0.75 percent at its next meeting in May. However, Brexit uncertainty and the related damage to the country’s growth prospects, have led the BofE governor, Mark Carney to reconsider. A rise in interest rates is still forecast for later in the year, but Mr Carney sees a rise next month as unlikely.

Once the rise does come to friction, however, businesses will find borrowing a little harder, as overdrafts become more expensive, and sales will take an even harder hit as consumer’s incomes are squandered on lending fees. As a result, businesses need to prepare their finances for a tailspin and ensure their cash flow will cushion the blow.

At the Credit Protection Association, our debt recovery services free up cash flow and provide our members with the financial security to survive any economic downturn.

Speaking to BBC News on the sidelines of the IMF Spring meetings in Washington, the Bank of England governor said interest rates were still likely to rise gradually but that the bank was “conscious that there are other meetings over the course of this year” when it can consider rates.

The prospect of continued low rates will, however, please borrowers, many of whom would have been hit by a rise in mortgage rates.

Economists have revised down their estimates for economic growth in the first quarter of the year following the weak data, which has been replicated across Europe. A few weeks ago, most expected the economy to have expanded 0.4 percent or 0.5 percent in the first three months, but now expect a figure half that size.

The governor made it clear Brexit was hurting growth prospects in Britain, preventing the country benefiting from a surge in investment seen across the rest of Europe.

With inflation likely to continue falling this year from its 2.5 percent rate in March, the urgency for BoE rate rises is likely to wane as the rate of price growth nears the BoE’s target of 2 percent.

The economic picture of the UK is improving. Inflation is almost at its target rate, unemployment is down, and wage growth is finally on the move. Britain still has a far way to go, of course, with the lingering Brexit uncertainty, and the floating possibility of an interest rise later in the year. All business owners should prepare for worst-case scenarios, whether that is a financial crisis, or any manner of economic downturn. Having some cash to cushion the fall will lessen the negative effects, as well as allow the owner to take advantage of the positive.

If there is indeed a rise in interest rates, then the subsequent increase in lending fees will discourage business owners from pursuing finance through their high street lender. While this will draw concern from economists, high street lenders aren’t the only option for those in pursuit of growth. Other than the alternative finance platforms such as crowdfunding and peer-to-peer lending, credit managers can also free up the necessary cash flow for expansion projects.

At the Credit Protection Association, the collaboration between our debt recovery and credit management products has meant that we have freed up cash flow as well as improved the financial standing of our members.

Rather than borrowing funds or involving investors, by approaching CPA, our members are reunited with overdue funds, which late payers had sought to delay. Our credit checks and company directories have further kept an eye on our members’ remaining good payers, taking the necessary precautions to ensure they stay that way. Many members have gone on to use this extra cash for expansion and renovation, putting their own money into their business, rather than someone else’s.

If the interest rates are hiked, our services will ensure our members have the financial freedom to not only land on their feet but go charging onto their next project or venture.