Bank of England announces “shocking” interest rate hike: Business leaders react

The Bank of England has announced a further hiked interest rates of 0.5 percentage points, taking the base rate to 5 per cent. But just how will this latest in a long line of increases affect the British economy and the thousands of businesses that operate within it? Read on to find out more…

CEO of Recognise Bank, Jean Murphy, was less surprised by the move, offering her thoughts on the BoE decision.

“This Base Rate increase of 50 bps was not totally unexpected and unfortunately places an increased burden on variable rate borrowers adjusting to broader cost of living pressures. It also however should see savings rates adjust upwards too. Rising prices are damaging to everyone though so hopefully this represents another step towards a decrease in inflation.”

Glenn Collins, head of technical and strategic engagement, ACCA UK:

“While another interest increase seems quite a surprise, it was always on the cards given the high rate of inflation. You can really understand why many businesses and consumers, even when holding cash, are pulling back from investment currently.

“The increasing interest rates will have a big impact for many consumers. And the business sector should not be forgotten either. This is starting to look like a grim day for businesses who have really struggled over the last couple of years. Small businesses in particular are going to have to manage their cost base and their working capital with great care.”

Jonathan Ashworth, ACCA’s chief economist:

“The Monetary Policy Committee surprised market expectations by voting for a larger than expected 50bps rate hike. Seven of the nine members supported the decision, noting that the stronger than expected wage and services inflation data suggested that there was more persistence in the inflation process.

“Key focus over coming months will be on developments in the labour market and with inflation, but the risk clearly lies in the direction of additional policy tightening.”

Pat Phelan, managing director UK&I and chief customer officer at GoCardless:

“Today’s interest rate rise, while expected, ratchets up the pressure for consumers and businesses as mortgages and loans become more expensive. This will put many businesses in a precarious position and B2C merchants face a double whammy: the rising cost of capital and an even more cautious customer base that will be looking after every penny.

“Rates are at their highest in 15 years, so there is no quick fix. But businesses can optimise their operations to get more value out of everything they do. For example, our new report on the Cost of Collecting Payments suggests that merchants leave a lot on the table when it comes to tackling involuntary customer churn or stemming fraud losses.

“With just a few simple tweaks, they can use payments to improve customer retention, boost their bottom line, and increase working capital. Although adjusting their payment strategy won’t solve everything, it is a proactive and simple way for businesses to create a little more breathing room.”

Ellie Sawkins, investment analyst, Wealth Club:

“The Bank has moved onto the front foot this month, raising the base rate by 0.5 per cent. While an increase in rates was all but guaranteed following this week’s sticky inflation figures, sentiment was divided over how high the Bank could go.

“Too small an increase and the Bank risks being labelled ineffective but too large and it could drive the economy into recession. By a wide margin, the MPC voted for the latter, although opinion was split with two members voting for a hold.

Headline inflation was a key driver behind today’s decision, having defied expectations to hold steady at 8.7 per cent. At the same time, core inflation, which strips out more volatile energy and food prices, has continued its march higher, rising at its fastest rate since 1992.

“Looking for the positives, real GDP increased in Q1 2023, marginally ahead of expectations and the Bank continues to forecast inflation falling significantly during the course of the year, with food prices in particular, expected to calm.

“However, in what has objectively been a difficult week for the Bank, it has continued its tightrope walk between stubborn inflation and an increasingly fragile economy, albeit with small steps. But one wrong move and the consequences could be painful.

“Whilst a 0.5 per cent rise will be grim reading for mortgage holders, spare a thought for those in Turkey, where the central bank has just raised interest rates by 6.5 per cent to 15 per cent!”

Dr Tony Syme, macroeconomic expert, University of Salford Business School:

“Following yesterday’s news that inflation remained static at 8.7 per cent, the Bank of England has responded by putting up interest rates for the 13th consecutive time.

“Given that last month’s fall in inflation was explained entirely by last April’s 50 per cent rise in gas and electricity bills falling out of the calculation, there is plenty for the Bank of England to be worried about. The UK has the highest inflation rate in the G7 and, within the G20 countries, only Turkey and Argentina have higher rates of inflation.

“In last month’s Monetary Policy Report, the Bank of England blamed high inflation on two factors: Russia’s invasion of Ukraine leading to big rises in the prices of gas and food basics, and unfilled job vacancies leading to high wages.

“The first factor may explain why inflation is higher in the UK than elsewhere. The UK has a greater reliance on gas for heating homes than elsewhere, 85 per cent of British homes are currently heated by gas, so UK inflation is strongly impacted by changes in the international gas prices.

“And in terms of food, the UK is the world’s third largest net importer of food and drink, according to the Food and Agriculture Organization of the United Nations. This is another factor that means UK inflation is largely driven by international rather than domestic factors.

“To reduce this dependency on the primary causes of the current inflation requires not interest rate rises, but investment in sustainable energy and food production. Higher interest rates will only harm that investment.”

By Matthew Neville – Senior Correspondent, Bdaily

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