Lancashire business group’s call to act to avoid stagflation

A Lancashire based business support organisation has warned that rising interest rates could resurrect the spectre of stagflation.

By Tim Gavell
Monday, 20th June 2022, 3:30 pm

Responding to the Bank of England’s Monetary Policy Committee’s vote to increase the base interest rate to 1.25 per cent, Federation of Small Businesses Policy and Advocacy chairman Tina McKenzie said that low growth and high inflation would make life difficult for everyone.

She said: “This latest rise illustrates something every small business owner will be acutely aware of: rising costs are running out of control, and the operating environment for small firms is tougher than it has been for some time.

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The Bank of England

“The increase will make access to finance for small firms more expensive. This makes announcing a successor to the Recovery Loans Scheme, which ends later this month, even more important.

“FSB figures show finance application approvals drying up, so banks must promote the new scheme in good faith. And if we see a credit crunch following, as we did in 2008, having a scheme like this from the British Business Bank already up and running could be crucial, to combat the recession and protect small businesses from going under through a lack of cash.

“The Bank of England recently used the word stagflation in connection to the current economic crisis, which is noteworthy and deeply worrying.

"Low growth coupled with high inflation will be a death knell to countless small businesses.

“This is a scary moment. It’s hard to overstate how devastating the current spiralling inflation levels are, for businesses and consumers alike, and the longer the situation goes on, the more the damage compounds.

“Anything which adds to the margin pressure small firms and sole traders are facing – such as an increase in debt costs as the base rate rises – is hard to swallow.

"Small businesses are bearing the brunt of this crisis, with cash reserves eroded throughout the pandemic and with late payments intensifying.

“The Government needs to act now. We would like to see small businesses receiving relief via a reduction in business rates or a direct reduction to energy bills like the support households received, and for micro businesses to be eligible for the consumer price cap.”