Interest rates rise to 1% - UK's largest regional accounting firm reacts

William Payne Regional Chief Executive South East England  Azets
William Payne Regional Chief Executive South East England Azets

SMEs likely to be hit hardest by reduced spending
William Payne is the regional chief executive for South-East England at Azets, the UK’s largest regional accounting firm and specialist business advisor to SMEs. Azets has offices across Hampshire and Dorset - Bournemouth, Chandler’s Ford, Fareham, Havant, Poole, Romsey and Winchester.
This is his reaction as the Bank of England raises the base interest rate to 1%:
“This is the first time in 13 years that the UK base rate has been at 1% – many businesses and the 1m-plus householders on variable mortgage rates aren’t used to seeing a continuous rise in borrowing costs and the impact that has on budgets.
“This is also the fourth rise in half a year, from 0.25% in December. The interest rate rise, whilst still historically low, will now place additional repayment burdens on borrowers and have a knock-on impact on businesses as spending is reined in, with SMEs likely to be hit hardest.
“Inflation, currently at 7%, is at a 30-year high due to an unprecedented confluence of factors.
“These include the pandemic, global supply chain disruption, Brexit, a lack of skilled workers and materials to meet demand, tax rises, the record number of job vacancies at nearly 1.3m, the energy price cap increasing by nearly £700 for 18 million householders and the worrying international situation with adversarial Russia.
“The Bank of England is using the rate rise as a tool to tackle inflation but in doing so may trigger a further tightening of already hard-pressed discretionary spending from consumers facing demands on their incomes.
“It is worth recalling that it was in February 2009 when we were last at a 1% interest rate, when the UK was in recession due to the global financial crash, with several high street banks being bailed out by the taxpayer due to a liquidity crisis and unemployment was at 2m, with inflation at around 3%.
“What we are seeing now are a completely different set of economic circumstances, far beyond what any of us could have imagined 13 years ago.
“However, many businesses are resilient and have benefited from significant efficiencies made during the pandemic, meaning they are better placed to absorb inflationary pressures.
“This is borne out by Azets’ latest SME Barometer, which indicated that more than half of companies expect turnover to increase over the year despite economic challenges.”
Timeline: February 2009
•    Lily Allen’s The Fear was number one in the singles chart
•    Labour’s Gordon Brown was Prime Minister
•    House prices fell by up 17.2% in the 12 months since January 2008
•    The Bank of England reduced the base rate of interest by 0.5% to 1.0% – the fifth reduction since October 2008


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