Interest rates: The industry reacts to the latest news

After 14 straight increases, interest rates have been held at 5.25% by the Bank of England, following an unexpected slowdown in inflation in August. 

Speciality Food finds out how the industry is reacting, and what the news could mean for your business.

“Welcome news for small businesses”

Emma Jones, CEO and founder of small business support group Enterprise Nation said the news was welcomed by smaller enterprises – especially those that have taken out loans to fuel growth. “Increasing interest rates means higher borrowing costs for SMEs including hospitality and food retail businesses, who often rely on loans and credit lines to fund their operations and growth, and reduced consumer spending, hitting their profit margins.”

The Bank’s target to halve inflation is on track, buoying hopes that the peak of the cost-of-living crisis could be behind us. “In the meantime,” Emma continued, “small businesses need a stable environment to regain confidence and all the support available to navigate the upcoming challenges to recover.”

“For independent retailers it is good news if it improves consumer confidence,” Andrew Goodacre, CEO of Bira, agreed. “We need to see shoppers spending more of discretionary items and holding the rates at least means that disposable income should remain the same. Although retailers cannot be complacent, and they still need to offer a combination of quality and value to shoppers, they need to communicate this message in every possible way.”

Further support needed in Autumn Statement

The Federation of Small Businesses (FSB) welcomed the news, though national chair Martin McTague warned that high petrol prices could still hamper business for SMEs. “The higher cost of filling a tank could lower consumer spending, with people put off from visiting their local high street, booking a weekend trip, or going for a meal out. A jump in freight and transport costs could also add yet more pressure to margins for businesses in all sectors.”

He called on the Bank to give small firms “some respite” and urged the government to use its Autumn Statement to show “its listening and understands their concerns”. 

“We’re also calling for an overhaul of business rates and an extension for the 75% discount for SMEs in retail, hospitality, and leisure, due to expire in April, as it is these consumer-facing sectors which have been especially acutely affected by falling confidence levels and economic headwinds,” he said.

Helen Dickinson, chief executive of the British Retail Consortium, similarly warned that retailers are in line for an increase of more than £400 million a year in their business rates bill. “This announcement would put further pressure on consumer prices, just as inflation is beginning to come under control.” She added that retail leaders are calling on the chancellor to freeze the business rates multiplier in his Autumn Statement.

Inflation still a worry

Following the recent drop in food price inflation, the Food and Drink Federation (FDF) warned that while the drop in inflation was “encouraging” it remains at historically high levels. 

“The reason inflation has not yet fallen further is because the costs of food production remain high, including ingredients, energy, transport and labour,” said CEO Karen Betts. “While commodity prices are generally falling, they remain 22% higher than they were pre-pandemic, with persistent inflation in some, like sugar and olive oil. 

“Food and drink manufacturers continue to do all they can to keep prices down for consumers while paying a fair price to their suppliers. The pressure on businesses in our sector is very visible in the high rate of insolvencies in the first half of 2023, which were 132% higher than during the whole of 2019,” Karen said.

The government must find ways to work with the food and drink sector to ensure inflation continues to fall, she said, including by slashing red tape on unnecessary regulatory burdens. “In particular, cumbersome new ‘not for EU’ labelling plans under the Windsor Framework need a pragmatic alternative if we’re to avoid significant, unnecessary costs being placed on already stretched businesses,” Karen said.