Aug. 4, 2022
Taken from an article published in the Evening Standard, on the 4th August 2022, here: FTSE 100 Live: Bank of England interest rate hike, recession warning | Evening Standard
Analysts in the City have reacted to the Bank of England’s interest rate rise and warning of a five-quarter long recession set to begin in October.
Adam Harris, Partner at accounting firm Mazars, says: “A 0.5% jump in the base rate is going to mean an unpleasant shock for a lot of businesses. Even the relatively mild rises we have seen in interest rates so far have tipped some businesses into insolvency. Today’s rise will likely trigger more closures.”
“With the base rate forecast by many to reach 3% at some point in the next two years, we are going to see a lot of businesses under financial strain. There are still a large number of ‘zombie’ businesses that have only survived the past decade because of how cheap debt has been. As their repayments become unsustainable, more of them will fail.”
Shane O’Neill, Head of Interest Rates at Validus Risk Management, said: Unsurprisingly, the market has latched onto the worsening forecasts more than the expected 50bps hike and we have seen the pound fall more than 0.5% against the dollar and the euro immediately following the release.
“The dreary predictions from the MPC represent ongoing pain for the consumer and focus will quickly turn to politicians to act – with Liz Truss the heavy favourite to take the Tory leadership, she may find the position a poisoned chalice as she takes the wheel just as we enter the worst recession in over a decade.”
Roger Clarke, CEO of property exchange business IPSX, said: “This is the end of the era of cheap credit. The BoE raising rates is unwelcome news for borrowers and investors.
“Higher rates mean higher financing costs for investors and weaker consumer sentiment. Certain subsectors are more vulnerable than others as a result of the cost of living crisis, particularly retail, with lower spending likely to dampen performance and capital values.”
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