Interest rises to hit business output
Rising interest rates could finally be having an effect on British business after output expectations dipped for the first time in over a year, according to a new study.
Link: Interest rates likely to stay put
BDO Stoy Hayward’s latest quarterly business trends report found what it described as a massive fall of the ‘output index’. The measure, which relates closely to GDP movements a quarter ahead, was down by 2.1 points to 101.6.
The firm said that reflected drops in orders as a result of rate hikes caused both consumers and businesses to rein in spending.
But BDO said that, with business optimism hitting a seven-year high, growth would ultimately remain healthy, predicting it would hit 3.4% in the first quarter of next year.
In what will be bad news for the Bank of England, the report anticipated a sharp increase in inflationary pressures this month, anticipating a rate of 2.5% by the end of the year – half a point above the Bank’s 2% target.
Chris Grove, partner at BDO, said: ‘The MPC will be walking a tightrope if it continues its pre-emptive strategy to manage inflation. Further rate increases will affect consumer spending, which has been the mainstay of the UK economy. And with an increasing interest burden, growing businesses as well as consumers could face problems.’