When are interest rates likely to fall and why does it matter to you?
After the fourteenth consecutive increase in interest rates since 2021, many business owners will be asking themselves the same thing: “When will interest rates finally fall?”
The higher the interest rates, the more money you pay on your debts like loans, overdrafts, and credit cards. Equally, many of your customers will also face higher costs on their debts.
Due to this and other economic conditions, your customers are likely to cut back on spending, which in turn can further restrict your cash flow and investment plans.
Earlier this year there were significant declines in inflation in both the USA and Europe, which is an encouraging sign for the UK, which has itself started to see more significant falls in inflation.
Rising like a rocket, falling like a feather
Inflation has already fallen slightly to 6.8 per cent in July 2023 (the latest figure at the time of publication), which is a good sign for struggling businesses, but don’t celebrate just yet.
At the moment the Bank of England (BoE) continues to increase the base rate, with it sitting at a recent high of 5.25 per cent at the end of August, with it expecting to reach a peak of 5.5 per cent during September 2023 and remain high for the following 12 months.
Any subsequent reduction in interest rates is likely to be slow, with forecasts suggesting that the BoE will have only cut interest rates to three per cent by 2026 as the Bank tries to meet its two per cent inflation target.
This is indicative of earlier predictions that despite the rapid increase in rates, they will be slow to come back down again. So, we are still going to be experiencing high-interest rates for the foreseeable future.
In addition to this, the UK economy witnessed a weakening of its position, with a further contraction likely in the coming year.
What does a fall in interest rates mean for your business?
Put simply, when the interest rate does eventually drop it will become cheaper to borrow and easier to pay back loans. The low interest rates should, therefore, offer an incentive to borrow and invest in your business.
Your customers and clients will likely have more money to spend once interest rates fall and the inflationary pressure on your employees’ wages should decline, helping you to manage costs.
In the meantime, businesses need to find ways to build resilience and manage the costs and challenges that come with high-interest rates.
An experienced accountant can also help you adapt to new market opportunities as interest rates fall and ensure that you have the capital to successfully ride out the current storm.
To receive expert advice on how interest rates affect your business, get in touch.
