The latest business distress index looks at the effect if interest rates rises on businesses. Following a survey of 500 representative businesses, commissioned by R3, it was established that 6 per cent of business managers felt their company would be put in ‘serious’ financial difficulty with a 1 percentage point rise by end of 2015, while 16 per cent said they would be put into ‘some’ difficulty.
Giles Frampton, President of R3, said “A one percentage point rise in interest rates is at the upper limit of what we might expect in the eighteen months, but policymakers should bear in mind that many businesses still feel they’re close to the edge of their comfort zone.”
There has been much in the press recently about the possibility of a rate increase over the coming months and how it would affect people and businesses. In the main, it is expected that rates will only increase if the economy starts to grow significantly and with it price pressures. Those conditions should help businesses and offset the affect of any rate rise.
Problems will arise if the costs of materials goes up significantly and the recent problems in Iraq, resulting in a sharp rise in oil prices, reminds everyone that this can happen.
As the economy continues to improve, and the rhetoric on interest rates increases, then it is likely the pound will strengthen further and this could put pressure on exporters, who are often also quite highly geared.