Business reactions to Bank of England's interest rate hike

“Today’s rate rise will mean yet more cost pressures for small firms as they battle spiraling prices and flagging consumer demand. An increase was inevitable at some stage so many businesses will have expected today’s rise. But that’s not to say they can absorb more hikes in the short-term. This change must be allowed to properly bed in before further increases are considered.  

“Only one in ten small firms is currently applying for external finance and we have a chronic issue with permanent non-borrowers in the small business community. Today’s rate increase could heighten the sense that borrowing is too expensive if you’re a small firm. That would threaten investment, growth and job creation.  

“You also need to consider the fact that, for a typical micro business owner, personal and business finance are closely interlinked. If mortgage and car leasing payments start to rise that’s less money to play with when it comes to expanding the business and taking on new people.”   

“The decision to raise interest rates comes as no surprise, given the recent signals from the Bank and several Monetary Policy Committee members signalling their intention to vote for a change of course.

“While it’s the first rate rise in over a decade, it is only taking the rate back to the level seen in August 2016 and at 0.5 per cent it remains near rock bottom.

“Businesses will be watching the reaction of consumers closely and what’s important is the pace of any future rises. As rates creep up, it’ll be important to keep an eye on the impact for those at the lower end of the income scale.”

“With this interest rate rise, the Bank of England (BoE) has reversed an emergency measure put in place post Brexit that perhaps ended up being unnecessary, given that the expected recessionary environment and jump in unemployment has not materialised.

“Mark Carney’s creditability was on the line and today’s decision sidestepped any danger of him being accused of ‘crying wolf’ for a second time if no action was taken. Against that backdrop, today’s increase comes as no surprise. The vote was not unanimous, so it will be interesting to see how the BoE progresses from here.

“Markets have already priced in the decision so we shouldn’t see any notable impact on stock prices in the short term, even though we are in the very unusual circumstance of a rate rise being implemented amidst relatively little GDP growth.

“This increase is likely to be part of a slow process of incremental rate rises over the next couple of years.  We can expect the Bank to raise the rate once or twice more next year, perhaps up to 1 per cent, and towards 1.5 per cent by the end of 2019. This would still keep rates at historically low levels, but raising them any quicker would be unsustainable and risk quashing any future growth in the economy.”

Morton added: “This continuation of the low interest rate environment is positive for equities, which are going through the longest bull market since the recession of 2008/2009. By contrast, 10-year bond yields are still at extremely low levels, and opportunities are lacking in most alternatives.

“Beyond interest rates, political uncertainties remain the major concern for investors in the UK to contend with. The lack of clarity surrounding Brexit and the UK Government’s instability are making it hard for companies to make investment decisions. In our view, there needs to be stronger assurances of continuity on a macro level over the next few years before we can change from being reasonably defensive in building portfolios. Despite this uncertainty, we are still finding opportunities in individual companies.”

“While the Bank of England’s decision to raise interest rates by 0.25 per cent doesn’t look like a lot on the surface, the potential impact on those working in the UK and sending money across the world to loved ones is massive.

“On one hand, those who have been able to save are going to benefit, as for the first time in a number of years they’ll have a larger return on their money, giving them more disposable income. Remittances could be a benefactor of this. On the other, those working off loans and tracker mortgages, could get affected as banks and loan companies may look to use this opportunity to their advantage. It’s really a catch 22 situation, and the impact on the UK and world economies is yet to be seen.”

“We expected that after 10-years of bank rates falling that at some point they will rise again so the announcement from the Bank of England is not a surprise.

“I am sure that for first time buyers and those trying to get a foot on the ladder that this change will have a marginal impact on them, however I don’t expect to see any Impact this will have on the London property market. As rates continue to rise, we may see some effect, but this will be a gradual change over a long-time period. It is expected that rates will rise to two per cent by 2021.”

“The bank rate rise from 0.25 per cent to 0.5 per cent will not have an enormous impact on the prime central London property market. In recent years, we have seen tighter controls on mortgage lending and although rates will continue to rise in the coming years, this will be done gradually so we don’t expect to see lots of distressed properties becoming available for sale. What’s more, many of our buyers purchase with cash, meaning that this will not affect them or their decision to buy a property. The bank rate rise will not hold a significant change in property prices. It’s business as usual for the London property market.”

“The Bank of England’s announcement today should come as no surprise.  This has been mooted for a while now and, in my opinion, is actually long overdue.

“In the aftermath of the financial crisis, it made sense that rates should be kept low in order to drive activity in the market.  That was, however, 10 years ago and the time is now right to start readdressing rates.  Given that this is a relatively small increase in the base rate, its impact to most borrowers should be nominal and, assuming they have planned appropriately, relatively easy to adapt to.

“What the industry needs to ensure, however, is that it works to stem any knock to confidence amongst consumers that this announcement brings.  Simply hearing news of a rate increase will lead some people to reconsider their financial and property decisions and whilst this is understandable in some respects, these decisions should only ever be made based on personal circumstances and with at least a medium, if not long, term view.

“When taken in this context, today’
s rate increase should not have any impact on the property market.”

“Inflation has been creeping up and The Bank of England’s Monetary Policy Committee has increased interest rates to 0.5 per cent to compensate, despite the annual growth rate being at its weakest for four years.

“A 0.25 per cent rise is not going to have a significant impact on the economy as a whole, but it will further depress a falling property market, particularly in prime central London. Currently, the market is flat.  

“As an example, there are two blocks of apartments near our Regent’s Park office that are historically very sought-after and if a property came available we would be swamped with buyers and a sale would be made very quickly.  In one of those blocks, in the same month in 2016 there were three apartments on the market and they all sold.

“This year, there are ten apartments currently available but there are no buyers for them.  In the other block, a very similar situation, there was one property on the market in 2016 and in 2017 there are ten that are not selling.

There are two main reasons for this. The first is that they are overpriced. Vendors still believe that values are what they were two years ago. I called the top of the market just over a “couple of years ago and it has been drifting down ever since, with a bit more yet to go.  With so many tax changes (increased stamp duty, an extra tax for buy-to-let investors and foreign investors’ tax) and Brexit looming, there is too much uncertainty and buyers, particularly overseas investors, have been put off making big financial commitments.

The government is being urged to abolish stamp duty ahead of the budget. Undoubtedly, this would be the best thing to happen to the property market. London is the driving force for every market and scrapping this tax would provide buyers with an incentive to start moving again.”

“Even though today’s rate rise was well signposted by Mark Carney, it will bring hardship for businesses that rely on consumer spending.

“Consumers are always wary of a rise in interest rates and we may see the retail industry experiencing a bumpy ride as UK shoppers tighten their purse strings. Businesses can defend against the effects of turbulence by ensuring cash management is a top priority, managing creditor payments and adapting to changes across the supply chain.

“Consumers and businesses will be hoping that after today’s announcement, any further interest rate rises will be staved off until well into the New Year.”