Rising interest rates will inflict ‘economic pain’ on hospitality while small businesses are left ‘especially worried’ following Bank of England’s 4.5% hike, industry leaders warn
- Hospitality chief warns ‘urgent action’ is needed to save businesses from closure
- Federation of Small Businesses has also accused the bank of being ‘out of touch’
Rising interest rates will cause ‘economic damage’ on the hospitality industry and ‘severely curtail’ small businesses from growing, industry leaders have warned.
The Bank of England today inflicted more misery on households across Britain as it hiked interest rates up 0.25 percentage points to 4.5 per cent – a new 15-year high.
It is the 12th consecutive bump and a peak since October 2008, when the credit crunch sent the level tumbling. The rise has sparked further fears over the viability of hospitality businesses, with firms already battling skyrocketing energy bills.
UKHospitality chief executive Kate Nicholls warned ‘urgent action’ is needed for hospitality businesses to avoid closure or passing their costs on to customers.
Martin McTague, chair of the Federation of Small Businesses, accused the Bank of England of being ‘out of touch’ with firms in the UK.
Bank of England governor Andrew Bailey today said the fall in energy prices and signs of resilience meant there would be no recession
UKHospitality chief executive Kate Nicholls (pictured) warned ‘urgent action’ is needed for hospitality businesses
Martin McTague (pictured), chair of the Federation of Small Businesses, accused the Bank of England of being ‘out of touch’
Ms Nicholls said: ‘Interest rates reaching their highest levels since 2008 will be a huge worry for hospitality businesses and could significantly impact business viability.
‘Hospitality was the business sector most affected by the pandemic, with a large number of businesses forced to take out loans to survive. With those loans now due, consistently rising interest rates compound debt and inflict further economic pain on venues.
READ MORE: Bank of England hikes interest rates AGAIN to new 15-year high of 4.5% in body blow to mortgage-payers
‘Loan repayment is not the only price pressure businesses face, with the sector now in a period of peak energy pain.
‘Urgent action is needed from Government to bring costs down, particularly on energy, and more needs to be done to assist businesses in their pandemic debt.’
The Bank of England’s Monetary Policy Committee voted for the interest rate rise by a margin of seven to two, citing that inflation – particularly food costs – had failed to fall as fast as anticipated.
Meanwhile, Mr McTague said: ‘Further rate increases past this latest one will risk entrenching the economic damage to small firms, severely curtailing their ability to invest and grow. We cannot end up in a situation where the cure is adding to the harms caused by the disease.
He added: ‘Recent remarks on inflation by senior members of the Bank of England team have reinforced small businesses’ fears that the Bank is out of touch with the reality of running a small firm in the UK.
‘With rate rises dampening consumer demand and making many business debts more expensive, small firms are absolutely up against it, while Government energy support has fallen away, leaving many exposed to spiralling utility bills.’
In March the MPC had indicated it would hold rates steady unless there was evidence of ‘persistent’ inflationary pressure.
Brits face more cost-of-living woe after the Bank of England hiked interest rates to a new 15-year high of 4.5 per cent
The Monetary Policy Committee (MPC) said inflation is set to stay higher for longer than previously expected
Markets have priced in a 0.2 percentage point increase to 4.5 per cent when the latest decision is announced by governor Andrew Bailey at noon
Britons are hit by rising cost of houses, travel, food and schools
But since then the headline CPI has come in at 10.1 per cent, well above the 9.2 per cent Threadneedle Street had pencilled in for March. The Bank of England’s target is just two per cent.
Bank of England governor Andrew Bailey said the fall in energy prices and signs of resilience meant there would be no recession.
‘The outlook for growth and unemployment has improved,’ he said.
‘Six months ago, we were expecting a shallow but long recession. Since then, energy prices have fallen substantially and economic activity is holding up better than expected.
‘Today we are forecasting modest, but positive, growth and a much smaller increase in unemployment.
‘We think inflation will fall quite sharply over the coming months, beginning with the April number to be released in two weeks’ time.
‘Energy prices have fallen from their peaks and that will now start to come through as lower inflation.
The BoE also sharply upgraded expectations for the UK economy
Markets have been pricing in more rate hikes by the Bank of England after annual CPI came in higher than expected at 10.1 per cent in March
‘Food price inflation should ease too, though we can be less sure about the timing.’
The MPC suggested that Rishi Sunak is on the edge of missing his target of halving the pace of price rises by the end of the year, with CPI predicted to be 5.1 per cent by the last quarter.
However, the Bank sharply upgraded its views on the economy, saying GDP is set to be 2.25 percentage points higher at the end of the three-year forecast period than pencilled in at the February meeting.
Chancellor Jeremy Hunt welcomed the economic improvement, but acknowledged the rate rise would be ‘disappointing’ for many Brits.
The easing in cost of living pressure is expected to be slower than previously thought, the Bank of England warned, but the Government’s promise to halve inflation by the end of the year is still narrowly on track.
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