Rising Interest Rates: How Are They Affecting Businesses?

Rising Interest Rates: How Are They Affecting Businesses?

Right now, the UK is going through a cost of living crisis. Inflation is the highest it’s been in 40 years and the Bank of England are rapidly trying to take steps to combat this.

If you want to find out more about rising interest rates and how they could impact your business then take a look below.

Why Are Interest Rates Rising?

UK interest rate forecasts are currently indicating an upward trend. Relaxing covid restrictions are causing people to spend more and, as demand increases, companies are finding it harder to get enough stock to sell. This is leading to consumers chasing goods shortages, while also rocketing the general price of products.

One way for the Bank of England to combat this would be to increase interest rates. Inflation interest rates are managed by the MPC, but there are services out there that are responsible for providing interest rates forecast UK, so companies can get a good idea of what is expected to happen in the near future. As a business owner, taking note of this is the best way for you to safeguard your company.

What Happens If Interest Rates Rise?

So, what happens if interest rates rise? And who will benefit from rising interest rates? High-interest rates mean that people borrow more. A lot of small companies are dependent on finance so that they can grow. Increased borrowing makes it very difficult for companies to get the capital they need to thrive. Inflation also means that consumers do not have as much disposable income. This impacts business revenue and it also creates a lot of additional pressure.

If you run a business then you should know that higher interest rates can lead to lower demand. People are much more reluctant when it comes to shopping on credit. People who have a high amount of wealth will see a higher return. Businesses will also see higher costs for borrowing, which will erode profit margins. If your company is not directly impacted by this then it is possible that you will still see some residual effects. You may see higher prices from suppliers, which can lead to you increasing your own prices. This can push inflation higher, and so forth.

As interest rates rise, companies can also claim more expenses through their tax return. That being said, this is balanced out by some companies profiting as a result of the interest hike, so it does go full circle when you look at the economic impact.

Which Businesses Benefit from Increasing Rates?

Now you know why interest rates rise and fall, it’s time to move on to which companies are set to benefit from rising interest rates. The investment and financial sector are known for being highly sensitive to interest rates. Profit margins expand as the interest rates climb for insurance companies, banks and even money managers.

Rising rates can indicate a stronger economy, so borrowers find it easier to make loan payments. Banks have non-performing assets, indicating that they can earn more from the spread. Consumer discretionary stocks may see a bump because of improving employment, along with a healthier housing market. Consumers may splurge on purchases outside of staples.

Finally, the industrial sector can benefit as well. When economic health is high, such as when rates are high, those who specialise in ventilation, heating and air conditioning experience a boost in performance. The fluctuations in interest rates may seem small but at the end of the day, it’s not surprising to see that the impact it can have on businesses is huge. This is why it’s important to take note of the current trend regarding interest rates, especially when borrowing money.

Will Interest Rates Go Down?

Will interest rates go down? At the end of the day, the market is going to continue to fluctuate as the years go by. It is impossible to predict what is going to happen within the economy and the pandemic has certainly caused a lot of disruption. That being said, it is expected that at some point, interest rates will go down. The best way for you to track the current state of interest rates would be for you to stay up to date on UK interest rates news.  This is the best way for you to stay ahead of the curve and for you to make sure that you are safeguarding your company against any economical changes.

If you need more business advice or information, take a look at Chamber of Business for more articles that can help your business grow.