The news that two member of the Bank of England’s monetary policy committee voted in favour of an increase on interest rates at their August meeting would suggest that the historic low rates are nearing their end.
We’ve written before about the possible impact of rising rates, however gradually, on businesses and consumers who are managing, just, their repayments.
Once variable loan rates start to increase, whether on business or household borrowing, we’ll see how robust the recovery really is. The Daily Mail is already running stark warnings about what could happen to mortgage borrowers who haven’t allowed for increased loan costs.
Equally, it won’t be news to readers of this blog that there are fears ‘zombie businesses’, which are working flat out just to service their borrowing, could be tipped over the edge and go bust.
Lenders have been tightening their loans policies with an eye to affordability, so the days of increasing your mortgage borrowing on the back of increased equity with just a phone call are over. On business lending, we know that’s still an issue, with companies’ still reporting access to capital for growth a problem.
But lenders are quite right to ask businesses, as with households, to really know where their income and expenditure goes so that they can factor in the costs of borrowing, especially where rates are variable and repayments can rise quite steeply.
The two committee members who voted for rates to go up apparently based their decision on likely upward pressure on wages as growing businesses have to start paying more to attract and retain qualified staff.
I wonder how many SMEs have seen any great sign of such pressure, and how many business owners are taking a pay rise for themselves? Certainly, anyone doing business with the public sector must be aware of the squeeze on spending there, one that is predicted to last whoever wins next year’s general election.
Talking of votes, businesses trading with Scottish firms will be watching the independence referendum next month with keen interest. A vote to quit the Union would bring inevitable upheaval although I’m sure that City interests will not wish to see their investments north of the border lose value. If there’s a yes vote, expect the question of which currency an independent Scotland uses not to be left unresolved for too long.