Following the Bank of England’s decision to rise interest rates to 4.5%, the 12th consecutive raise since December 2021, Azets director of restructuring and insolvency, Robert Young, offered his insights into what this will mean for small and medium-sized businesses throughout the country.

Young said: “This rate rise will cause some alarm to SMEs given that, in early March, market commentators – and the Governor of the Band of England himself – suggested that rates may have peaked after 10 successive increases.

“We now have the highest rates since 2008. Whilst many will state that the rate is not high in a historical context, the feeling will be very real for the approximately 1.5m UK homeowners on a variable rate mortgage and the millions that will see their fixed-rate expire this year. This will have an inevitable knock-on effect on discretionary spend across the UK.

“Businesses will likely feel the pinch from both sides as their own cost of borrowing will, in most cases, increase further whilst consumer demand may reduce given this further cost-of-living squeeze. The increase in borrowing costs will be particularly stark for businesses which do not have a great pool of assets against which lending can be secured.

“Whilst it is perhaps in everyone’s interests to drive down inflation, there will be widespread concern in view of the high levels of gearing (both personal and business) and given the various other stubborn headwinds which persist in the UK and across the globe.”

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