Rising interest rates increase pressure on small businesses in Lancashire

Federation of Small Business national chairman Martin McTague was speaking after the Bank of England’s decision to raise the base rate from 1.25% to 1.75% which will increase payments on nationwide loans and mortgages.

He said: “The need to get inflation under control is clear, with costs at an all-time high for 89% of small businesses according to the latest FSB Small Business Index – driven by fuel, utilities, inputs, labor and tax increases.

“The change in interest rates is not without consequences: it takes steam out of the economy at a time of weak growth. Small businesses already face severe uncertainty as they try to recover from the impact of Covid, while coping with the cost of doing business.

Martin McTague FSB National President

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“First, many business, personal and business loans held by small businesses and sole traders are not protected by fixed rates and will scale with the current increase. In a situation where inflation is already putting many small companies in extremely difficult conditions, there are now fears that these companies will face higher costs to repay their loans.

“Secondly, attempts to return to a functional commercial loan market will be hampered as new products will become more expensive – and so small businesses will find it harder to access affordable credit.

“The British Business Bank’s stimulus loan program returns later this month, and it couldn’t happen soon enough. If the economy slows in the fall, it will be even more important that the program is up and running and up, so that it can be flexed.

“Hard-working individual business owners are also already fighting an uphill battle against supply chain disruption, rising utility bills and soaring fuel prices. Action must therefore be taken on other challenges faced by small businesses.

“Many members report that energy bills have increased four or five times over the past few months. Small business energy customers lack the consumer protections, nor do they have the bargaining power of their larger counterparts, making utility bill inflation particularly difficult to manage. Micro-enterprises in difficulty should be offered aid for energy expenditure equivalent to that granted to households.

“The government should also consider other measures to mitigate the soaring costs of doing business, such as reversing the National Insurance hike, cutting VAT and fuel taxes and introducing further reductions in business rates.

“The cost of living crisis cannot be solved without simultaneously solving the cost of doing business crisis; we need to bring inflation down, but the negatives of today’s hike strengthen the case for supporting small businesses because thousands and thousands of small businesses will have less financial leeway.

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