'Missed opportunity' claim over rates

11:20am Friday 5th September 2008

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FOLLOWING the decision by the Bank of England to hold interest rates at five per cent for the fifth consecutive month, the Forum of Private Business (FPB) believes another opportunity has been missed to stimulate the growth of small businesses, which are increasingly struggling as a result of the credit crunch.

"A rate cut would have boosted small firms’ confidence, as well as that of consumers, and would have helped them trough the difficult times that they face in the current credit crunch," said Nick Palin, the FPB’s director of finance and administration.

"Instead, small firms will feel disappointed and abandoned yet again, as they have done for the past five months."

Despite successive cuts in 2007, following steady increases in the previous three years, the Bank of England’s Monetary Policy Committee (MPC) has again chosen to maintain the status quo, holding rates at five per cent when a cut would have boosted the confidence of small firms, says the FPB.

Research conducted by the FPB in the first quarter of 2008 found that 59 per cent of the small-business-owner respondents believed that spiralling interest rates had had a “negative” or “very negative” impact on investment.

In addition, 74 per cent with both overdrafts and loans reported an increase in lending rates during the previous six months.

Recent indications from the FPB’s members are that accessing finance has become more difficult.

Small firms are enduring many other difficulties, including seeing cash-flow hit by the increasing likelihood of larger organisations not paying them on time and imposing sudden and unilateral changes to payment terms, which often incorporate “settlement discounts” – imposed reductions on invoices, says the forum.

A commitment to reducing interest rates in the run-up to the Budget in 2009 would be an indication that the issues are being taken seriously by the Government, says the FPB.