On 11 May, the Bank of England announced that interest rates had risen for the 12th time in a row. The rates increased from 4.25% to 4.5%, the highest level for almost 15 years.
Paul Butterworth, Interim CEO, at Chambers Wales South East, South West and Mid, said:
“The Bank of England has announced today that interest rates are increasing across the country for the 12th time in a row. Now stubbornly high at 4.5%, interest rates are at a 15-year peak. This will continue to have implications on borrowing costs for businesses who require access to finance who are struggling to absorb continued price rises.
“Welsh businesses are currently having to contend with record high inflation and energy costs as well as contending with skills shortages. The UK Government has scaled back support, with the end of the super deduction and EBRS schemes at the end of March.
“The Prime Minister stated that one of his main priorities was to halve inflation; we see this as a priority to support economic growth. The fall in inflation that was expected in March and April but did not materialise is holding companies back and therefore it is understandable that the Bank of England needed to make this decision to stabilise the economy.
“However, this will be a cold comfort for businesses. With costs still increasing, 60% of Welsh businesses are expecting to have to raise prices in the next three months and many have stated that they intend to increase prices for the fifth quarter in a row. This cycle is not sustainable for Welsh businesses after facing already unprecedented challenges.
“Chambers Wales South East, South West and Mid and the British Chamber of Commerce are calling on the UK Government to take action to relieve the pressure on businesses by tackling skills training, boosting international trade and investing in infrastructure.”
David Bharier, Head of Research at the British Chambers of Commerce, said:
“The decision to raise the interest rate for the 12th consecutive time to the highest rate since 2008 shows the Bank is continuing to pull this lever hard as the rate of inflation remains stubbornly high.
“The unprecedented and prolonged spike in inflation has been devastating for many small firms who have been struggling to absorb continued price rises.
“But interest rate rises can also have serious negative effects too, particularly for firms looking to borrow to manage their cash flow problems. Our most recent Quarterly Economic Survey found that interest rates were a concern for 47% of hospitality firms. The combination of high interest rates and high inflation would mean the worst of both worlds for many small firms.
“The UK Government should consider further action to break this vicious cycle by boosting economic growth – through investment in infrastructure, skills training, and global trade.”