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DAVID RICHARDSON: Interest rate hike will hit businesses in Caithness and Sutherland as confidence sinks again

By David Richardson

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Business Comment by David Richardson

David Richardson, regional development manager at FSB.
David Richardson, regional development manager at FSB.

Earlier this month the Bank of England increased interest rates by half a per cent – from 1.25 per cent to 1.75 per cent. So why all the fuss?

Well, 0.5 per cent might not sound much, but it’s the biggest hike in 27 years. It was done to cool the economy and reduce inflation, but at a dangerous time for smaller businesses.

Increased interest rates will affect businesses in Caithness and Sutherland both directly and indirectly. Depending on the nature of their loans, people who borrowed to purchase or develop their businesses will see their repayments shoot up, while businesses seeking to borrow now to invest in their operations following the two-year pandemic hiatus might well be put off altogether.

And this is bad for the future, for it is imperative that businesses maintain the quality of what they’ve got, let alone develop and expand for the future.

And it’s not as though this interest rate increase is an isolated event. Add the eye-watering increases in fuel and utilities costs to the staff/skills shortage and forecast recession, and it’s no wonder that business confidence is low. In fact, confidence in Scotland is at its lowest since the height of the pandemic – late 2020.

Of course, it doesn’t stop there, for increased mortgage payments plus the astronomical increases in energy and other costs are hitting consumers where it hurts too, reducing their discretionary spend enormously.

We’ve already seen a dip in consumer demand for holidays in the northern Highlands this year, and for a visitor-dependent area like Caithness and Sutherland this really matters. A robust, thriving tourist industry is essential if we want vibrant communities with well-balanced, growing populations – something sadly lacking at the moment.

But all is not lost. The Federation of Small Businesses is calling on governments in Edinburgh and London to introduce a range of measures to ease soaring costs such as reversing the hike in National Insurance; cutting VAT and fuel duty; ensuring that small, independent businesses – the beating hearts of their communities – get the same protection as households; and using the underspends in government Covid support funds to keep businesses alive over the winter.

  • David Richardson is the regional development manager for the Highlands and Islands at the Federation of Small Businesses.

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