Why you should be wary of the base rate cut
- September 16, 2016
- Posted by: admin
- Category: Company Blog
Interest rates hit a record low of 0.25% last week, with the Bank of England lowering the cost of borrowing to encourage spending in the aftermath of Brexit. But as a commercial collection agency, we believe the lowering of rates could prove costly for all small businesses in the long run.
It’s obvious why the Bank’s Monetary Policy Committee decided to slash the rate for the first time since 2009. Financial markets were negatively affected following the referendum, with many experts predicting the UK to experience a recession in the coming months.
Lower interest rates make the cost of borrowing cheaper, enticing consumers and businesses to take out low-cost loans for more spending and investment. And while this could be positive for the economy in the short term, the longer term economic outlook is less predictable.
Consider the many businesses that you currently trade with. If even half of them were attracted by a low-cost loan right now, this would add a significant (albeit cheaper than a few weeks ago) new long-term expense to their outgoings. That’s half of the businesses you deal with getting into more debt.
And if the economic outlook continues to remain shaky at best, then taking on this debt could spell long-term disaster, especially if consumer spending wanes and repayments become unmanageable.
That’s why you should always have contingency plans, so bad debtors never affect your cash flow. As a respected commercial collection agency, we can help you recover any money you’re owed now, or in future, with zero risk. Get in touch to find out more.