Economic climate looking ‘riskier’ for small firms

Interest rate rises cause economic slowdown

Economic activity in the UK looks set to slow down dramatically by the end of the year, creating a ‘riskier’ environment for small firms, it has been claimed.

According to a quarterly report by the British Chambers of Commerce (BCC), the series of five interest rate increases over the past year will cause a marked slowdown in economic activity and GDP growth, which will continue into much of 2008.

The report found that recent strong growth in investment spending looks set to decelerate as the economy slows, while the strong pound will have an adverse effect on firms’ exporting capabilities.

The BCC also warned that businesses have not yet felt the full force of the five rate rises.

David Kern, economic adviser to the BCC, said:

“The cumulative adverse effects of five interest rate increases since August 2006 are set to worsen over the next year, as the pressures facing consumers and businesses intensify.

“A marked slowdown in UK activity is highly likely even if interest rates stay at 5.75%. The expected increase to 6% would cause further damage, and it is critically important that 6% should be the peak. There is now a genuine risk of overkill.”

The BCC has now called upon the government to pay particular attention to the threats facing small businesses over the months to come.

Kern added: “Overall, the UK budgetary position remains stretched, and ‘stealth taxes’ will continue to be a key instrument for dealing with the problem. Recent tax increases (notably the higher small business tax rate), and concern over future tax increases, will remain major factors likely to dampen business confidence.

“The economic climate facing UK businesses will become riskier and more difficult. We urge the government to pay particular attention to the threats facing small businesses.”

© Crimson Business Ltd. 2007

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