With the Bank of England voting against another increase to the interest rate in September, maintaining it at 5.25%, many business owners may be wondering when interest rates might finally fall.
The higher the interest rates, the more money you pay on your debts like loans, overdrafts, and credit cards. Equally, many of your customers will also face higher costs on their debts.
Due to this, and other economic conditions, your customers are likely to cut back on spending, which in turn can further restrict your cash flow and investment plans.
Earlier this year, there were significant declines in inflation in both the USA and Europe; an an encouraging sign for the UK which has itself started to see inflation fall.
Rising like a rocket, falling like a feather
Inflation has already fallen slightly to 6.7% per cent in August 2023, and remained stable in September. Whilst this is a step in the right direction for struggling businesses, hold the celebrations for now.
Any subsequent reduction in interest rates is likely to slow, with forecasts suggesting that the BoE will have only cut interest rates to 3% by 2026 as it attempts to meet its 2% target.
This is indicative of earlier predictions that, despite the rapid increase in rates, they will be slow to return to previous levels. So, ultimately, we are going to be experiencing the effects of high interest rates for the foreseeable future.
In addition to this, the UK economy has witnessed a weakening of its position, with a further contraction likely in the coming year.
What does a fall in interest rates mean for your business?
Put simply, when the interest rate does eventually drop, it will become cheaper to borrow and easier to pay back loans. Low interest rates should, therefore, offer an incentive to invest in your business and, should you need to do so, to look at securing funding.
Your customers and clients will likely have more money to spend, and the inflationary pressure on your employees’ wages should subside, helping you to manage costs.
In the meantime, businesses need to find ways to build resilience and manage the challenges that come with high interest rates.
This might involve updating your business plan, reviewing your current pricing structure and supply chain, tightening up credit control processes, making use of forecasting tools at your disposal, and looking at ways to better manage your cash flow.
How can George Hay help?
An experienced accountant can help you to adapt to new market opportunities as interest rates fall, and ensure that you have the capital to successfully ride out the current storm.
To talk to one of our experts about how interest rates may impact your business, contact us today.