A quarter of regional businesses say they would be put in financial difficulty to some degree by an interest rate rise, according to insolvency trade body R3’s latest Business Distress Index.While the majority (71%) of the firms surveyed by R3 across the North East, Yorkshire and Humberside said they would be unaffected by an interest rate rise of one percentage point or more over the next 18 months, 24% of survey respondents believed they would be put in some financial difficulty by such a rise, with a further 1% expecting serious problems to result.
And Allan Kelly, chair of R3 in the North East and a partner with RSM, is advising those businesses who are unconcerned about the prospect of an interest rate rise to be mindful of how it might impact on their suppliers and customers.
Three per cent of the businesses surveyed across the North East, Yorkshire and Humberside would expect to benefit from this type of interest rate increase.
Allan Kelly says: “It is encouraging that so many businesses feel they would be able to brush off an interest rate rise, but the underlying problem for them in this situation could be that, while such a rise wouldn’t necessarily affect them directly, it could affect their suppliers or customers, the failure of either of which could have a detrimental impact on their operations.
“Businesses have to be ready for how consumers will react to higher borrowing costs, as a small rate rise could mean consumers will be spending more on their mortgages and cause them to save more or be more cautious in their spending, rather than going out and buying businesses’ products.”
R3’s Business Distress Index is a long-running survey of business concerns and growth prospects carried out by BDRC Continental.
Across the UK, four per cent of businesses – equivalent to 77,000 companies – said they would struggle to repay their debts if interest rates were to rise.
Allan Kelly adds: “While the proportion of regional firms that say they would struggle after a rate rise has fallen as the economy has recovered, it still represents a substantial amount of businesses and jobs that could be put in difficulty.
“Businesses have had plenty of headwinds to cope with since the recession, and record low interest rates have been a real boost, so rising interest rates could be a real test for some of them.”