Businesses to immediately pay nearly £1bn in extra interest as Bank of England hikes rate by 0.25% – London Business News
The Bank of England’s monetary policy committee confirmed on Friday that its base rate would rise a further 0.25% to 1.25%, research from international audit, tax and advisory firm Mazars shows that UK businesses face an immediate increase in interest payments of £929 million.
Analysis of Bank of England data by Mazars shows that UK businesses are currently paying £11.2bn a year in interest payments on floating rate debt which are likely to be immediately hit by a rise in interest rates. Companies that have to refinance their debt at fixed rates will later suffer from the rise in rates.
With rates up just 0.25%, annual interest payments on business loans will jump to £12.1bn almost overnight.
Further increases in the base rate would have an even more dramatic impact. If interest rates were to rise to 2%, interest payments for businesses would rise another £3.7bn to £14.9bn.
Mazars says that with increasing business insolvencies, the rising cost of borrowing should force more businesses to close.
Rebecca Dacre, partner at Mazars, said: “The number of business closures is accelerating and that is when interest rates are still historically low. With each increase in the base rate, the debt burden increases and more companies will go bankrupt. Cost pressures are relentless and businesses are running out of places to turn.
“It’s worth remembering that it’s not just consumers who are facing a cost of living crisis. Businesses are also seeing their costs rise sharply, and those that sell directly to consumers are being hit by people cutting back on their spending.
“Experts have warned that there will be an increase in the number of business insolvencies and that each increase in costs makes it more likely.”