Interest rates – to fix or not to fix, that is the question!
At its meeting ending on 14 December 2022, the Monetary Policy Committee (MPC) voted by a majority of 6-3 to increase bank rate by 0.5 percentage points, to 3.5%. Two members preferred to maintain bank rate at 3%, and one member preferred to increase bank rate by 0.75 percentage points, to 3.75%, so what will happen at the next meeting scheduled for Thursday 2 February 2023?
A further increase in base rate will add a further interest burden on already stretched business owners. For example, a 0.5% increase will add an interest cost of £1,000 per annum to a borrowing of £200,000.
Whilst fears are easing of further significant movements upwards in base rate, any interest rate rise continues to be a concern for business owners with borrowing and for those looking to borrow.
Business owners need to understand what options are available, how rising interest rates will impact their ability to secure borrowing and how lenders are responding to the current interest rate environment. For example, three year fixed rate borrowing remains more expensive than five year deals by c0.5% so it is important to get a range of borrowing options including fixed and variable rates from a range of lenders.
Despite rising interest rates lenders are still open for business. They will expect to see a well-structured proposal backed up by balanced forecasts that set out best and worst-case scenarios.
Businesses are reminded to take independent advice before borrowing or making changes to their existing borrowing.
To discuss ways to improve your cashflow and business borrowing please get in touch with our Funding team.
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