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The Bank of England Monetary Policy Committee meets several times a year to decide on the base interest rate.
The last time the base interest rate was this high was in 2008. What does this mean for businesses?
The Bank of England base rate is set by the UK’s central bank. This is the rate that high street banks and other commercial lenders use when setting their own interest rates.
The Bank of England’s Monetary Policy Committee meets eight times a year, where the committee votes on any changes to the base rate.
By setting the base rate, the Bank of England can respond to changes in the UK economy.
The current Bank of England base rate is 5.25 per cent and was held for the second time in a row. This Bank of England interest rate decision was announced after the Monetary Policy Committee meeting on 2 November 2023.
The next Bank of England interest rate decision will be on 14 December 2023.
As mentioned, interest rates change according to what’s happening in the UK economy.
The last time interest rates were this high was 2008, before an era of cheap money began during the financial crisis.
That era has ended, with economists predicting that interest rates will only start falling in early 2024 (inews.co.uk).
While the Bank of England is responding to rising inflation, there’s the risk that the economy could slow too much if interest rates increase too quickly.
And despite the increases, interest rates aren’t keeping up with rising inflation. This means that the value of cash savings is still being eroded, as you can’t buy as much with your money.
Interest rates signal how much it costs to borrow money, as well as how much savers can earn by putting money aside.
Interest rates are important for businesses, as funding often comes in the form of borrowing money. When interest rates rise, things like small business loans become more expensive. It also means more expensive mortgages.
Changes in interest rates can also affect consumer behaviour. Higher interest rates encourage saving rather than spending and are typically used in response to increasing inflation.
When the cost of goods rises due to pressures on demand, higher interest rates help relieve that pressure (in theory), as consumers hold fire on spending and taking on more debt.
We’ve mentioned ‘interest rates’ as lenders set their own rates based on a range of factors, for example the risk of not being paid back on time.
But, as explained above, it's also important for small businesses to keep an eye on the Bank of England base rate.
The wider economy is challenging right now, which means businesses may need to revisit their business plan and pivot their strategy in response.
While what you do will vary depending on the specifics of your trade and business, here are some tips for responding to Bank of England base rate changes:
How are you responding to rising interest rates and inflation? Let us know in the comments below.
Sam has more than 10 years of experience in writing for financial services. He specialises in illuminating complicated topics, from IR35 to ISAs, and identifying emerging trends that audiences want to know about. Sam spent five years at Simply Business, where he was Senior Copywriter.
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