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What does the latest Bank of England 0.25% rate rise mean for SMEs and Venture Capital? Experts share their views

by | Mar 23, 2023

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Today’s 0.25% hike by the Bank of England’s MPC clearly has implications for SMEs across the UK – especially given yesterday’s shock news of inflation still on the rise. Commenting on the outlook for businesses, experts have been sharing their views with us as follows:

Commenting on the outlook for SMEs as the BofE raises interest rates yet again, Douglas Grant, Group CEO of Manx Financial Group, said: “Today’s rise in interest rates was expected after Wednesday’s surprise inflation jump and the recent turmoil in the banking sector, and it is yet another blow to businesses struggling to survive another cashflow squeeze. SMEs must take this as a reminder to review their existing lending structures and ensure they are prepared for further hardship. While improving GDP data provided a glimmer of hope for small businesses, the interest raise is a worrying numbers and indicates that a recession is likely to afflict the UK in 2023 as the Bank of England remains hawkish in its approach.

“Many SMEs prepared for these hikes by listening to lenders and locking in their debt into fixed rate structures, but it is now too late for other businesses that were not as forward-thinking. As businesses desperately require liquidity provisions to counteract supply chain issues, increases in wages and a worsening cost-of-living crisis, demand for working capital will continue to rise. Our research reveals that over a fifth of UK SMEs that required external finance over the last two years were unable to access it. Moreover, over a quarter of SMEs have had to stop or pause an area of their business due to a lack of finance. The lack of availability of finance is costing SMEs and the UK economy in terms of growth at a time when it is needed the most. The level of growth that is being prevented is significant and will require novel solutions to bridge this funding gap.

 
 

“Despite positive introductions and extensions to loan schemes last year, such as RLS Phase 3, more proactive action that what we saw in last week’s Spring Budget is needed. Since the pandemic-caused economic turmoil, we have been calling for a sector-focused permanent government-backed loan scheme that brings together both traditional and alternative lenders to guarantee the future of our SMEs. As the government looks for ways to power the economy’s resurgence in 2023, the importance of a permanent scheme cannot be understated. It could act as the fundamental difference between make or break for many companies and, in turn, our economy. We hope this becomes a reality.

John Glencross, CEO and Co-Founder of Calculus Capital said:

“Today’s news is not wholly unexpected following the higher-than-expected inflation figures published this month. The Bank of England is under pressure to navigate a difficult economic period but we’re pleased to see that the UK has shown remarkable resilience despite significant uncertainty caused by rising interest rates, supply chain issues, increases in wages and a worsening cost-of-living crisis. Demand for growth capital remains at unprecedented levels and there is now a real opportunity to provide meaningful support to a new generation of UK companies driving the digital revolution forward, improving healthcare and creating jobs and opportunities throughout the country.

 
 

“Knowledge intensive companies within technology and healthcare – two of the UK’s fastest growing sectors – operate in an exciting investment landscape due to the UK’s strong presence of research universities, robust Government support, and thriving M&A market. The UK’s technology sector leads the European market, having raised double the amount of VC funding of any other country in 2022. Meanwhile, the UK healthcare sector has, in recent years, been a world leader in fighting pandemics and advancing patient care.

“Calculus, which established the first approved EIS fund 24 years ago, launched a Knowledge Intensive Enterprise Investment Scheme (EIS) Fund in October to provide investors with the opportunity to not only benefit from the diversified, strong performing and tax efficient nature of its products, but to also support innovative UK companies with a societal purpose and impact with at least 80% of the fund’s capital invested into businesses carrying out research and development to create new intellectual property.”

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