Interest rates rise to 0.5% – how will this affect you?

Interest rates rise to 0.5% from 0.25%. This is the second time in the last 3 months that the Bank of England (BoE) has increased their rate, in a measure to try and keep inflation within the Bank of England’s 2% target rate.

Interest rates go up to 0.5%

The Bank of England (BoE) increased the rate from 0.1% to 0.25% in December 2021 and has now raised it further to 0.5% in February 2022.

This is the first time since June in 2004 that the Bank of England has increased interest rates in two consecutive months.

This rate rise is in response to increasing inflation which increased to 5.4% in December 2021, the highest rate in almost 30 years.

The Bank of England has stated that these recent increases are to make sure the rate of inflation comes back down to 2% – the target the Government has set the Bank of England.

Will interest rates go up further?

The Bank of England has stated that it may need further interest rate increases over the coming months. It also explained that this is dependent upon how the economy performs and the prices of energy and other imports as well as wages and the level of spending in the UK.

The Bank of England expects inflation to reach over 7% by spring 2022 before it starts to come down. This is well above the target rate of 2%.

When will interest rates rise again?

The Bank of England reviews how the economy is doing and whether a change in interest rates is required eight times a year. The next review is scheduled for Thursday 17 March. Following this, the remaining dates are confirmed as follows:

  • Thursday 5 May
  • Thursday 16 June
  • Thursday 4 August
  • Thursday 15 September
  • Thursday 3 November
  • Thursday 15 December

Will the interest rate rise affect your business?

Interest rate increases can affect businesses in numerous ways, so it is important to assess how interest rate rises may impact your business.

Innovation and Investment – consider if interest rises affect your spending on investment and innovation? Ensuring that  R&D tax credits are correctly claimed may greatly assist here.

Existing business loans – examine how additional interest costs effecting business loans and company credit cards could impact your cashflow and profits.

Credit held short term – consider how reliant the day-to-day operations of the business is on short-term bank credit, and how will rate rises alter this.

Foreign currency – where businesses trade internationally, or those that accept foreign payments, consider how rate rises could affect the value of foreign currency income or reserves.

HMRC & late taxes – the late payment interest rate (currently 2.75%) is likely to rise

Alexander & Co – business advisors to astute entrepreneurs

For accountancy and taxation advice to help your business, Alexander & Co can assist you.

From providing advice on R&D tax credits for innovation and investment, through to business restructuring and advice on becoming more tax efficient, our corporate advisors are on hand to ensure you receive expert advice.

To discuss our services and how we can assist your business, please fill in the form below, call us on 0161 832 4841 or email info@alexander.co.uk

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