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April 13, 2015, by Kelly Cookson

Are interest rates affecting business activity of UK SMEs?

Back in February 2015, the Bank of England governor said low inflation is temporary and will return to its 2% target within two years. Mr Carney stressed that if there was any evidence of a sustained fall in inflation, the Bank could “if necessary” cut interest rates from their current 0.5% low to zero, but he emphasised that the “focus of policy is towards tightening”.

In light of this report, in the March 2015 Business Barometer survey our panel of UK SMEs and business advisers were asked about the effect of uncertain interest rates would have on SMEs’ business decisions and profitability.

The responses from small business owners were as follows:

How important is uncertainty about what will happen to interest rates to your investment and employment decisions?
Very important 1.6%
Important 17.7%
Moderately important 33.9%
Of little importance 30.6%
Unimportant 8.1%
Not applicable 8.1%


To what extent is your business profitability sensitive to interest rate changes? 
Very great extent 0%
Great extent 1.6%
Some extent 35.5%
Little extent 24.2%
Very little extent 32.3%
Not applicable 6.5%

Panellist Alan Finn of FINNbiz Consultants commented: “Lower and steady interest rates increase clients’ confidence and thus business growth and investment.”

UK business advisers were asked about the effect of interest rates on their clients:

How important is uncertainty about what will happen to interest rates to the investment and employment decisions of the businesses that you advise?
Very important 11.7%
Important 26.0%
Moderately important 35.1%
Of little importance 15.6%
Unimportant 5.2%
Not applicable 2.6%
Don’t know 3.9%


To what extent is the business profitability of the businesses that you advise sensitive to interest rate changes?
Very great extent 1.3%
Great extent 7.8%
Some extent 44.2%
Little extent 35.1%
Very little extent 9.1%
Not applicable 1.3%
Don’t know 1.3%

One advisor suggested that interest rates do affect small businesses: “The majority of SMEs I encounter have a level of borrowing so low interest rates are important for them. However, access to finance is a continuing issue.”

However, another commenter suggested that there are other factors which are more important than interest rates: “Our members feel that cost of finance is less of an issue than late payment or even getting the finance in the first place. Our members tend to be moving away from reliance on the banks and external finance even if it means slower growth.”

The UK Business Barometer and UK Business Adviser Barometer surveys are run by the Haydn Green Institute for Innovation and Entrepreneurship. The results of the surveys are instantly processed and posted on their respective websites: and

Businesses and advisers wishing to contribute as panellists on the project can register via the websites.

Posted in Business BarometerBusiness financeGovernmentSMEs