A base rate increase could spell end for thousands of businesses, says report

SMEs

The Insolvency Service has revealed that a base rate increase of just one per cent could result in over 18,100 new personal and company insolvencies by 2020.

It said such an increase could mean the end of 8,100 businesses by 2019, and a further 10,000 by 2020.

The report, which forecasts the number of insolvencies so that it can plan its services accordingly, also looks at a number of other economic factors, such as household debt, GDP, interest rates and earnings.

It adds that, combined with these additional factors, even a small increase of 0.5 per cent could net an additional 9,700 insolvencies over the next three years.

Commenting on the statistics, Ruban Sanmuganathan, financial planner at Plutus Wealth Management, said: “it is not necessarily inflation itself that could cause a problem. The other issue is foreign exchange costs, for even a small company who is trying to import their supplies.

“That is going to be more expensive for them because of the Forex issue, and if interest rates go up then the costs of borrowing start to go up as well.

“This will create a leaner environment for businesses that don’t have the capacity to absorb such shocks, and if they don’t already have good cash reserves it could become a problem.”

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