Although the Bank of England’s Monetary Policy Committee decided to hold interest rates at 0.5% again in their August meeting, economists are generally agreed that the first rises are imminent. The more the UK’s economic recovery gets back on track, the more a base rate rise becomes likely, and ultimately the MPC’s sole aim isRead More
Although the Bank of England’s Monetary Policy Committee decided to hold interest rates at 0.5% again in their August meeting, economists are generally agreed that the first rises are imminent.
The more the UK’s economic recovery gets back on track, the more a base rate rise becomes likely, and ultimately the MPC’s sole aim is to keep inflation close to 2.0% over the long term.
Often a change in the base rate coincides with the publication of the quarterly Inflation Report by the bank, but that was not the case this time, with the latest version issued in August.
So, should we expect a change in September or October, or a delay until the next Inflation Report is due in November?
The fact is, for debt recovery, it doesn’t matter exactly when the first moves are made; only whether or not the base rate has risen by the end of the year.
On December 31st, the current level of the base rate will become the ‘reference rate’ for the following six months, and the statutory interest rate on business debts will therefore be set at 8% higher than the reference rate.
The MPC could raise the base rate by 0.25% for each of the next four months, or by one full percentage point in December, and the December 31st rate of 1.5% would still become the reference rate for the first half of 2016.
Frustratingly of course, this means that when the base rate is rising, there is a delay of potentially almost six months before you can pass on that rate rise in the statutory interest you charge to your debtors.
Conversely, you might find your own business finance lenders enforce a higher interest rate almost overnight when the base rate starts to climb, in accordance with the relevant contracts you may have signed.
As such, in a climate of rising interest rates, it’s actually even more important to keep on top of your cash flow, so you do not fall victim to this lag of anywhere up to six months.
If you need help in doing so, we can take care of your credit control arrangements to keep your invoices coming in on time on a more regular basis – and we can advise on launching debt recovery proceedings on any overdue amounts you are owed, too.
If you would like to talk to a member of our team please use our comment box below or give us a call on 0808 149 3275