Two-thirds of small firms fear interest rate rises

Number of businesses very concerned about rising interest rates has risen in the last year, while inflation and commodity price rise fears have fallen

More than two-thirds of small to mid-sized businesses are either very or somewhat concerned about the possibility of interests rates rising over the next six months according to Lloyds Bank Business in Britain report.

The report, which collates the opinions of more than 1,500 firms, showed that 67% see rising interest rates as a threat to their business, up from 65% last year. While 68% also see inflation as a considerable risk, though this has decreased from 74% in 2014, reflecting the recent fall in inflation and lower cost of raw materials such as oil.

Overall UK business confidence fell by 10 points to 43% from a record high in July 2014 in light of continuing concerns about the global economic recovery. Just 56% of small to medium-sized businesses were concerned over foreign exchange movements – only 1% higher than January 2014 – but the proportion of respondents saying they were very concerned rose to 16%. Additionally, 59% of firms said they were concerned over the risk of commodity prices, dropping from 65% the previous year.

The regional picture shows the West Midlands are the most concerned about interest rates at 74%, compared to 70% for Yorkshire and 69% for Scotland. Inflation was the biggest concern for Gloucester and the South Midlands and the North East & Cumbria at 74% followed by 71% for the West Midlands. Gloucester and the South Midlands were also significantly worried about foreign exchange movements at 73%, followed by London and the West Midlands at 62% and 61% respectively.

By sector the cost of commodities was the most significant concern for those in manufacturing at 84% compared to 72% of those in retail/wholesale and 70% in transport. Foreign exchange movements was the next biggest concern at 79% in manufacturing, 74% in energy and utilities and 65% in retail/wholesale. Elsewhere, inflation was the most pressing worry for the transport sector at 78%, ahead of 75% for manufacturing and 73% in construction.

Most (69%) of responses were from businesses with an annual turnover below £10m, 7% from those with an annual turnover between £10m and under £15m and 24% from businesses with a turnover in excess of £15m.

Trevor Williams, chief economist at Lloyds Bank Commercial Banking said: “The recent drop in oil prices has had a big impact on driving down price inflation and the Bank of England expects the annual increase in the consumer price index to fall further in the next few months, possibly turning negative in the spring.

“However the expected boost to consumer spending from falling oil prices means that an interest rate rise is still likely at some point over the next 12 months. Businesses need to be alert to this risk.

“The good news is that the fall in oil prices will also boost growth, and it is notable that that the Bank of England revised up its GDP growth forecast for 2015 and 2016. Business confidence about the prospects for the UK economy remains strong.”

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