The high cost of borrowing caused by a series of interest rate rises combined with fears of further hikes is deterring small businesses from fulfilling their expansion plans, a business lobby group has claimed.
The Bank of England’s Monetary Policy Committee voted today to keep the interest rate at 5.5%, but analysts believe that there will be further rate hikes in the months to come.
According to Frank Peck, economic adviser to the Forum of Private Business (FPB), further rate increases could restrict the growth of smaller companies.
He said: “The obvious problem with further rate rises is that uncertainty discourages investment, particularly for the expansion of smaller businesses which may have worries about the increased cost of borrowing.
“It is much more difficult for smaller firms to absorb short-term variations in these costs. The MPC will certainly need to be aware of this in making its decision.”
The FPB recommended that small firms investigate fixed-rate loan options, given the current economic uncertainly and high cost of borrowing.
The organisation has also warned the Bank of England against ‘putting the brakes on the economy’ if too many smaller companies decide not to expand their business.
© Crimson Business Ltd. 2007
