Business Commentary by David Richardson
Earlier this month, the Bank of England raised interest rates by 0.5%, from 1.25% to 1.75%. So why all the fuss?
Well, 0.5% may not seem like much, but it’s the biggest increase in 27 years. It was done to cool the economy and reduce inflation, but at a dangerous time for small businesses.
Rising interest rates will directly and indirectly affect businesses in Caithness and Sutherland. Depending on the nature of their loans, people who borrowed to buy or expand their business will see their repayments skyrocket, while companies looking to borrow now to invest in their operations after the two-year pandemic hiatus may well be completely postponed.
And that’s bad for the future, because it’s imperative that companies maintain the quality of what they have, let alone grow and grow for the future.
And it’s not as if this rise in interest rates was an isolated event. Combine skyrocketing fuel and utility costs with labor/skills shortages and the expected recession, it’s no wonder business confidence is low. In fact, confidence in Scotland is at its lowest since the peak of the pandemic – late 2020.
Of course, it doesn’t stop there, as rising mortgage payments along with astronomical increases in energy and other costs are hitting consumers where it hurts too, dramatically reducing their discretionary spending.
We have already seen a drop in consumer demand for a holiday in the Northern Highlands this year, and for a visitor-dependent region like Caithness and Sutherland, that really matters. A robust and thriving tourism industry is essential if we want vibrant communities with well-balanced and growing populations – something sorely lacking right now.
But all is not lost. The Federation of Small Businesses is calling on governments in Edinburgh and London to introduce a range of measures to mitigate soaring costs, such as reversing the National Insurance hike; reduce VAT and fuel taxes; ensure that independent small businesses – the beating heart of their communities – enjoy the same protection as households; and using underspent government Covid support funds to keep businesses alive through the winter.
- David Richardson is Regional Development Manager for the Highlands and Islands at the Federation of Small Businesses.