Attempt to slow inflation see Interest rates rise to 1%

Interest rates have risen again to 1% as the Bank of England vainly tries to slow inflation, which frankly is being driven by such unusual factors that it’s going to be hard to keep it under control – inflation is expected to run at around 10% which will impact everyone’s lives.

Higher interest rates are bad for everyone with mortgages (around 1/3 of adults) and will come especially hard on top of fuel and petrol prices. Far from any signs that recent rises have been able to slow inflation, until fuel prices stabilise and drop, we are in for a rocky ride.

A big concern is also for those businesses who stretched their operations during the pandemic on the back of a wave of ecommerce which is now much more muted and back to more normal times. Those who invested in warehouse space which is now under utilised will not only have rent payments to make, but will also feel the pinch on their credit payments and face wage pressures to retain staff. Empty warehouse space that’s not being used and has to be paid for is bad enough, but even worse is inventory sitting on shelves that’s not shifting and with consumer spending only likely to get even more depressed that should be a real concern for those in this position.

Interest rates have rapidly risen from the 0.1% in the pandemic to 0.25% in December, 0.5% in February, 0.75% in March and now 1% in May. Any further interest rate rises are going to start to have serious impacts for businesses, especially for those looking to finance their stock purchases for the fourth quarter of the year and have the headache of seeking working capital.

Advice would be that if you are taking out finance that you lock in a fixed interest rate where possible and plan well for stock that you are confident will sell through.

An interesting side effect we’ve seen is that in the home and garden category, purchases of low ASP items is muted but there is still a strong market for higher ASP items. Try booking a builder and you’ll discover that they are booked up 3-6 months in advance and theses tradespeople are those that will be installing conservatories and building extensions and that part of the market, at least for now, appears to be more resiliant.

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