Interest rates

An expected surge in interest rates triggered by Friday’s budget has triggered fears for the future of indebted companies, with hundreds of thousands already in financial distress. With the financial markets now pricing in an interest rate rise to 5 per cent by March, concerns are mounting that companies across the UK will be unable to service the corporate debt taken out when rates were at rock-bottom levels. Meanwhile, the most dramatic budget continued dividing opinion in the business world. Tech chiefs warmly applauded the extension to EIS and venture capital trust schemes for start-ups and seed capital.

David Fleming, UK head of restructuring at the consulting firm Kroll, said insolvencies were already rising because of supply chain pressures, energy costs and wage increases. «Five per cent interest rates will heap more pressure on cashflow and profitability,» he said. Although businesses were granted government-backed loans during Covid, many on fixed rates, the Bank of England has calculated that 70 per cent of lending was given outside of the emergency schemes and is exposed to floating rates. High street campaigner Bill Grimsey has said at least 50,000 independent retailers and hospitality businesses are at risk of folding after accruing £1.7 billion of debt.

Will Wright, head of restructuring at Interpath Advisory, said «zombie» companies with high debt levels had been primarily supported by low-interest rates. However, Ravi Anand, managing director of the business lender ThinCats, said consumer-facing businesses would suffer first. «With most bank lending on a floating margin, higher interest rates will only exacerbate this trend,» he said, adding that the mini-budget and the continued fall in the value of sterling means «importers will become challenged unless they can pass on some of the cost increase».

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