More businesses to go bust after today’s rate rise as £2bn is added to borrowing costs overnight
With the Bank of England Monetary Policy Committee increasing its base rate by another 0.5 per cent to 1.75 per cent, UK businesses face an immediate increase in interest payments of more than £2bn.
Analysis of Bank of England data shows UK businesses are currently paying £14bn annually in interest payments on their £409bn in floating rate debt.
This debt is likely to be impacted by the interest rate rise immediately, while businesses that have to refinance their fixed-rate debt will be hit by the rate rise later.
With rates rising by 0.5 per cent, their biggest jump since 1995, annual interest payments on that debt will increase to £16bn almost overnight, research from audit and tax firm Mazars shows.
Further increases in the base rate would have an even more dramatic impact.
If interest rates were to rise to 3 per cent, interest payments for businesses would rise by a further £5.1bn to £21.1bn.
More businesses going bust
With 19,191 UK businesses having gone insolvent in the past 12 months – a 70 per cent increase on 11,261 in the previous year* – rising borrowing costs are likely to push even more businesses to close, explained Adam Harris, partner at Mazars.
“A 0.5 per cent jump in the base rate is going to mean an unpleasant shock for a lot of businesses,” Harris told Morning Wire, pointed out that “even the relatively mild rises we have seen in interest rates so far have tipped some businesses into insolvency. Today’s rise will likely trigger more closures.”
He added that “with the base rate forecast by many to reach 3% at some point in the next two years, we are going to see a lot of businesses under financial strain.”
“There are still a large number of ‘zombie’ businesses that have only survived the past decade because of how cheap debt has been. As their repayments become unsustainable, more of them will fail,” Harris concluded.