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SMEs still fear the prospect of interest rate rises

More than two-thirds (67 per cent) of small and medium-sized enterprises (SMEs) in the UK are concerned about the prospect of a rise in interest rates in the next six months, according to the latest Business in Britain report from Lloyds Bank.

The survey, which garners the opinion of more than 1,500 SME owners, has seen the number of people concerned about interest rate rises increase nationally from 65 per cent in Q1 2014 to 67 per cent in Q1 2015.

A similar number of small business owners (68 per cent) also cite inflation as a risk to their business, but that figure is six per cent down year-on-year from 2014; reflecting the recent fall to record-low levels of inflation and the declining cost of raw materials.

SMEs are also concerned about commodity price risks (59 per cent) and foreign exchange movements (56 per cent).

In terms of overall UK business confidence, the report suggests this fell by 10 points from record-high levels in July 2014 to 43 per cent, amid fears of the global economic recovery.

Tim Hinton, managing director, mid markets and SME banking, Lloyds Banking Group, said: “Interest rate uncertainty is a clear concern for businesses, with the possibility that rates may start to rise in small steps before the end of 2015 and in 2016.

“Businesses should consider how a rise in rates might affect their long-term plans, ensuring they are prepared for the potential impact on their cashflow or their customers and suppliers.”

Trevor Williams, chief economist, Lloyds Bank Commercial Banking, believes that although the UK consumer price index could even move into negative figures in the next quarter, increased consumer spending means an interest rate increase is still probable in 2015.

“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.”

Image: Bank of England

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