How growing businesses are dealing with rising interest rates and inflation

9th May 2022

Small-business owners might have been forgiven for breathing a sigh of relief as the UK economy began to open up in the early part of 2022.

Nearly two years of on-off coronavirus lockdowns looked to be ending, legal restrictions were being lifted and the outlook for businesses was positive.

Yet, just as one crisis has started to fade, a number of other significant challenges for entrepreneurs have presented themselves. Looming largest is runaway inflation, which the Bank of England is attempting to control by raising interest rates.

The combination of sharply rising prices with successive increases in interest rates has put pressure on business owners for two reasons. Firstly, the cost of doing business – buying raw materials, paying wages and general overheads – has shot up. Secondly, rising interest rates mean the cost of business loans will go up, which restricts financing options for companies, especially those already in debt.

“The interest rise[s]… will pile yet more stress on small-business owners struggling with debt,” says Mike Cherry, National Chair of the Federation of Small Businesses (FSB). “The hope, against a backdrop of spiralling utility bills and surging inflation in the round, is that it goes some way to putting the brakes on rising prices.

“The back-to-back rate increases will mean more pain for all those with personal and professional debt that carries a floating rate.

”The situation is certainly precarious. On 17 March, the Bank of England’s Monetary Policy Committee (MPC) increased interest rates to 0.75%, its third consecutive increase.

At the same time, the Bank warned that inflation measured using the Consumer Price Index (CPI) is expected to reach 8% by June, a level not seen for decades and one that is far above the target rate of 2%.1 It added that inflation could go even higher later this year, potentially hitting double-digits before it begins to settle down.

Rampant inflation is having an immediate impact on Britain’s small companies because of the increases in the everyday cost of doing business. One such is Fantastic Services, a sustainability-focused provider of cleaning and maintenance services.

“Inflation has had quite an impact on our business,” says Chief Executive Rune Sovndahl. The company has had to switch to different detergents to save costs – but on the plus side, this has allowed it to choose a product that is better for the environment.

Rune explains: “We are now using tablets that dissolve in water when a particular job needs to be completed. This has actually led to using less transportation and water.”

Soaring inflation means that, as a fast-growing business, Fantastic Services must reconsider how it funds its expansion plans. “We do have cash reserves, and we are also looking for different ways to fund our biggest spending,” says Rune. “Our focus at the moment is going green and supplying our teams with electric vehicles. We are still at the very beginning of planning this, and we are already encouraging our franchisees to invest more in them.”

What else can you do if your business is trying to deal with rising prices? Many businesses are contemplating – or have already taken – drastic action to mitigate the impact of inflation. According to a survey published in February by the British Chambers of Commerce, 73% of firms say they are increasing prices in response to rising costs.2

Another issue for businesses to contend with is rising energy prices, which have been described as an “existential threat” to small companies by the FSB. Unlike consumers, businesses do not have a price cap to protect them, and they face spiralling costs in the months ahead.

The average small business spends more than £3,000 a year on energy, according to research by payments provider Tyl, part of NatWest. Some 70% of small-business owners believe that the cost of their energy bill impedes the growth of their business, according to the survey.3

If you’re looking again at your financial planning to mitigate rising costs, please get in touch.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.

Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.


Monetary Policy Summary, Bank of England, March 2022, 17 March 2022
2 3 in 4 Firms Raising Prices as Chancellor warned of ‘Cost of Doing Business Crisis’, British Chambers of Commerce, 10 February 2022, from a survey undertaken between 17 January and 4 February; question answered by 985 businesses
3 Tyl survey of 500 UK SME owners, September 2021