The Bank of England Monetary Policy Committee confirmed on Friday their base rate will rise by another 0.25% to 1.25%, research from international audit, tax and advisory firm Mazars shows UK businesses face an immediate increase in interest payments of £929m.
Analysis of Bank of England data by Mazars shows UK businesses are currently paying £11.2 billion annually in interest payments on floating rate debt that are likely to be immediately impacted by an interest rate rise. Businesses that have to refinance their fixed-rate debt will be hit by the rate rise later.
With rates rising by just 0.25%, annual interest payments on business lending will increase to £12.1bn almost overnight.
Further increases in the base rate would have a yet more dramatic impact. If interest rates were to rise to 2%, interest payments for businesses would rise by a further £3.7bn to £14.9bn.
Mazars says that with business insolvencies already rising, increases in the cost of borrowing are likely to force more companies to close their doors.
Rebecca Dacre, Partner at Mazars said, “The number of businesses closing down is accelerating and that’s while interest rates are still at low rates historically. With every rise in the base rate, debt burdens increase and more businesses will go under. The squeeze on costs is relentless and businesses are running out of places to turn.”
“It’s worth remembering that it’s not only consumers that are facing a cost of living crisis. Businesses too are seeing their costs rise sharply and those that sell direct to consumers are being hit by people cutting their spending.”
“Experts have been warning there would be a rise in the number of business insolvencies and every rise in costs makes it more likely.”