By Jonathan Davies
More than two thirds (67%) of small and medium sized businesses (SMEs) are either very or somewhat concerned with the possibility of an interest rate rise in the next six months, according to the latest Business in Britain report from Lloyds Bank.
The report canvasses the opinions of over 1,500 SMEs and shows that firms still see interest rate rises as a threat to their business, up slightly from 65% from 2014’s findings.
Although a similar number of firms (68%) also see inflation as a risk for their business, this has decreased from almost three-quarters (74%) from the same time last year and reflects the recent fall in inflation and the lower cost of raw materials.
The overall findings from this year’s report found that UK business confidence fell by 10 points from a record high in July 2014 to 43%, amid concerns about the global recovery.
Only 56% of SMEs are concerned over movements in foreign currency, a similar level to January 2014, although the proportion of firms who said that they are very concerned increased by three points to 16%.
Tim Hinton, Managing Director, Mid Markets and SME Banking, Lloyds Banking Group, said: “Interest rate uncertainty is a clear concern for businesses, with the possibility that rates may start to rise in small steps before the end of 2015 and in 2016.
“Businesses should consider how a rise in rates might affect their long-term plans, ensuring they are prepared for the potential impact on their cashflow or their customers and suppliers.”
Trevor Williams, Chief Economist, Lloyds Bank Commercial Banking said: “The recent drop in oil prices has had a big impact on driving down price inflation and the Bank of England expects the annual increase in the consumer price index to fall further in the next few months, possibly turning negative in the spring.
“However the expected boost to consumer spending from falling oil prices means that an interest rate rise is still likely at some point over the next 12 months. Businesses need to be alert to this risk. The good news is that the fall in oil prices will also boost growth, and it is notable that that the Bank of England revised up its GDP growth forecast for 2015 and 2016. Business confidence about the prospects for the UK economy remains strong.”
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