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Highest interest rates since 2009: how does this affect you?

Martin Cull profile picture

For many businesses and individuals, it's not only inflation that seems to be at a record high. Interest rates are now rising too. MARTIN CULL from our audit team discusses the implications.

On May 5th, the Bank of England (BoE) Monetary Policy Committee (MPC) announced a 0.25% rise in interest rates. This is the fourth consecutive rise in interest rates since December 2021, increasing rates from 0.75% to 1% and producing the highest interest rate since 2009.

This increase comes hot on the heels of a steep rise in the cost of living, with the unprecedented events of the COVID-19 pandemic and Russia's ongoing invasion of Ukraine exacerbating the supply chain issues being faced by the UK, as well as much of the world. 

With the current inflation rate sitting at 7% in comparison to the BoE target rate of 2%, the MPC are hoping to curb the rate of inflation by encouraging consumers to save their money instead of spending, and also to avoid borrowing. They plan to do this by raising interest rates, with the aim of reaching their target inflation rate of 2% within two years and a further decrease in inflation to 1.3% within three years.

How this change will affect you

Due to many individuals using mortgages and bank loans to finance property purchases and business ventures, the interest rates on these loans are likely to rise in line with the BoE's increase. This will lead to a hike in monthly repayments, which may cause some property owners and businesses with loans to struggle meeting their obligations without proper planning.

Credit card costs will also be affected by the continual increase in interest rates. This could lead to a restriction on business working capital and cash available on a day-to-day basis, as businesses avoid the additional interest.

Another area that will affect all businesses and self-employed individuals are the changes to HMRC's interest rates. HMRC's interest rate is directly correlated to the BoE base rate (which is calculated as base rate + 2.5%), meaning that the increase will also cause additional costs in relation to any late payments to HMRC.

The changes to HMRC's interest rates will come into effect on 16/05/2022 for businesses paying in quarterly instalments and 24/05/2022 for any businesses paying otherwise.

It is now more important than ever to put in place efficient cash-flow planning to meet loan obligations and also ensure timely tax submission and payment. Contact Page Kirk to discuss the different ways we might be able to assist you with this. We can reached on 0115 955 5500 or by email at enquiries@pagekirk.co.uk

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