What is the updated interest rate as of Friday 23rd March?

What was the latest update on interest rates on the 23rd March?On Thursday 2nd February 2023, the interest rate (Bank Rate) increased by 0.5 percentage points to 4%. This came after an unexpected jump in the UK inflation rate in February to 10.4%, from 10.1% in January. Rates have now risen by 4.15 percentage points since December 2021, the most aggressive tightening of UK monetary policy for decades. The interest rates are assessed every six weeks or so to decide whether a change is needed. They were updated again on Friday 23rd March, where it was announced for the 11th meeting in a row that the Bank of England's Monetary Policy Committee (MPC) would be again increasing the interest rates. 

On the 23rd of March, the MPC held a meeting whereby they reviewed the current bank rate, which was currently at 4%, they voted by a majority of 7-2 to increase Bank Rate by a further 0.25 percentage points, to 4.25%. It was previously predicted that the base rate will rise as high as 4.4% by July and given the current situation it seems the base rate will reach that. 

Inflation is peaking now, and the MPC are expecting it to fall faster. It is currently much too high; however, they are expecting it to come down towards the intended target towards the end of the year. In a more upbeat assessment, the Bank of England also said it was no longer forecasting a technical recession, whereby the economy shrinks for two consecutive quarters. 

What actions should you be taking as a business owner, to limit the negative effects that the interest rate rise can have on your business?

• Update your cashflow forecast to account for higher finance repayments.
• Update your monthly/weekly/daily breakeven to factor in higher monthly finance repayments. See here for a guide on how to calculate your business breakeven.
• If you have surplus cash, look at options to get a higher level of return/interest on deposit accounts, ensuring that you invest wisely.
• Download our Interest Review tool to review all the different forms of finance you have in your business, check what the actual interest rate now is (particularly where it is tied to base rate), and action as follows:
• Ensure you are aware of the additional amount of costs/repayments due on these different forms of finance.
• Review all the forms of finance, and look at options of re-aligning necessary finance needs by utilising the lowest cost options that you have available, either through a re-finance or by restructuring your finance options.  For example, on your review by using our Interest Review tool, you might find that your CBILS loan is one of the most costly finance options now and therefore will impact your decisions to repay this or move this finance to another option that is lower interest rates.
• For more detail on the impacts that the increase in interest rates can have on businesses, refer back to this article - https://www.oldfieldadvisory.com/articles/2023/03/522-increase-in-interest-rates

What happens next?The interest rate will be reviewed every 6 weeks; The Bank of England’s Monetary Policy Committee last met on Friday 23rd March and their next meeting will be on the 11th May. 

With all the above, it is important to take professional advice. Liquidity is essential, cash is king. Ensure your business can stay liquid, ensure that any financing is the right-size for your business, and you ensure that you are aware of any immediate/on-demand finance options, and the effect this may have on the liquidity/acid-test ratio in your business.

For more information on how we could help you and your business, contact us at info@oldfieldadvisory.com or call 02476673160.

Please note: This article is provided for information only and was correct as at time of writing (27/03/23). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance.  No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.