Over two thirds of businesses cite future interest rate rises as a cause for concern

18 February 2015

  • Interest rate rises remain a significant cause for concern for small to medium sized businesses
  • The number of firms concerned about the risk of inflation drops by six points to 68 per cent
  • The manufacturing (84 per cent) sector is the most concerned about the impact of commodity prices

 Over two thirds (67 per cent)of small to medium sized businesses are either very or somewhat concerned with the possibility of an interest rate rise in the next six months according to the latest Business in Britain report from Lloyds Bank.

The report canvasses the opinions of over 1,500 small and medium-sized businesses and shows that firms still see interest rate rises as a threat to their business, up slightly from 65 per cent from 2014’s findings.

Although a similar number of firms (68 per cent) also see inflation as a risk for their business, this has decreased from almost three-quarters (74 per cent) from the same time last year and reflects the recent fall in inflation and the lower cost of raw materials.

The overall findings from this year’s found that UK business confidence fell by 10 points from a record high in July 2014 to 43 per cent, amid concerns about the global recovery.

Only 56 per cent of small to medium-sized businesses are concerned over movements in foreign currency, a similar level to January 2014, although the proportion of firms who said that they are very concerned increased by three points to 16 per cent.

Tim Hinton, Managing Director, Mid Markets and SME Banking, Lloyds Banking Group, said: “Interest rate uncertainty is a clear concern for businesses, with the possibility that rates may start to rise in small steps before the end of 2015 and in 2016.

“Businesses should consider how a rise in rates might affect their long-term plans, ensuring they are prepared for the potential impact on their cashflow or their customers and suppliers.”

Trevor Williams, Chief Economist, Lloyds Bank Commercial Banking said: “The recent drop in oil prices has had a big impact on driving down price inflation and the Bank of England expects the annual increase in the consumer price index to fall further in the next few months, possibly turning negative in the spring.

“However the expected boost to consumer spending from falling oil prices means that an interest rate rise is still likely at some point over the next 12 months.  Businesses need to be alert to this risk. The good news is that the fall in oil prices will also boost growth, and it is notable that that the Bank of England revised up its GDP growth forecast for 2015 and 2016. Business confidence about the prospects for the UK economy remains strong.”

Table of Results

Indicator

January 2014

January 2015

Very or somewhat concerned over risk of interest rates rises

65%

67%

Very or somewhat concerned over risk of foreign exchange movements

55%

56%

Very or somewhat concerned over risk of inflation

74%

68%

Very or somewhat concerned over risk of commodity prices

65%

59%

Regional Picture

Interest rate uncertainty is found to be less of a concern in the South West, where only 58 per cent of businesses said they were concerned of the risks it brought to their business for the next six months, contrasting with 74 per cent in the West Midlands.

Of the regions surveyed, Scotland is the least concerned with volatility in foreign exchange rate movements (41 per cent) but is the most concerned over commodity prices (69 per cent), reflecting the region’s strong link to the oil and gas industry.

Region

Concerned* over Interest Rates

Concerned* over FX Movement

Concerned* over Inflation

Concerned* over commodities

West Midlands (Birmingham & Staffs)

74%

61%

71%

69%

Gloucester & Oxon/ South Midlands

71%

73%

74%

67%

East Midlands (inc Lincolnshire)

68%

59%

69%

61%

London

68%

62%

65%

54%

South West (Bristol & Somerset/Devon & Cornwall)

58%

44%

68%

61%

South East (Kent & East Sussex/Surrey, Hampshire & Dorset)

62%

52%

64%

57%

Wales

65%

42%

69%

58%

North West

65%

51%

69%

52%

North East & Cumbria

67%

45%

74%

60%

Yorkshire

70%

59%

70%

69%

Scotland

69%

41%

71%

69%

*Concerned- businesses that have specified either very or somewhat concerned.

Sector picture

The cost of commodities is of significant concern to those in the manufacturing (84 per cent), retail/wholesale (72 per cent) and transport (70 per cent) sectors.

Sector

Concerned* over Interest Rates

Concerned* over FX Movement

Concerned* over Inflation

Concerned* over commodities

Manufacturing

73%

79%

75%

84%

Construction

73%

39%

73%

64%

Energy & Utilities

60%

74%

63%

69%

Retail/Wholesale

72%

65%

69%

72%

Hospitality & Leisure

73%

52%

67%

65%

Transport

74%

59%

78%

70%

Communications

69%

62%

70%

56%

Financial Services

63%

48%

61%

42%

Business/Professional Services

54%

47%

63%

49%

Real Estate

75%

38%

64%

46%

Healthcare

77%

57%

68%

53%

Public Sector

57%

32%

66%

38%

*Concerned- businesses that have specified either very or somewhat concerned.

Ends

Notes to editors

  • The Business in Britain survey has been carried out twice a year since 1992. Responses from 1503 firms were collated in November 2014 by BDRC Continental.
  • Respondents were asked the following question:

How concerned are you about the following financial market risks to your business in the next six months? - Interest rate rises, foreign exchange movements, inflation (RPI or CPI), commodity prices

A: Very concerned, Somewhat concerned, Not concerned at all

  • 69 per cent of the responses came from businesses with an annual turnover below £10 million #
  • 7 per cent of the responses came from businesses with an annual turnover between £10m and under £15million
  • 24 per cent of the responses came from businesses with an annual turnover of over £15 million
  • For more information contact Ed Smith, Media Relations Manager T: 0207 661 4936
    E: Ed.Smith1@lloydsbanking.com