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By Lynne Gowers on 10th November 2017
IPSE, the Association of Independent Professionals and the Self Employed, has responded to the Bank of England’s decision to raise interest rates for the first time in a decade.
The Bank of England’s Monetary Policy Committee, responsible for setting the base rate, voted by 7 members to 2 in favour of increasing the rate. This was in a bid to dampen inflation, after the Consumer Prices Index, a key measure of inflation, rose to 3% in September – the highest since April 2012.
Inflation is expected to peak at around 3.1% and then start to fall towards the Bank’s target of 2%.
The interest rate rise is bad news for borrowers on variable or tracker rate mortgages, while savers will be welcoming better returns.
The rise is something of a mixed blessing for independent professionals and the self-employed. On the one hand it indicates that the Monetary Policy Committee is more assured about the economy and it could also serve to strengthen the pound.
However it could have a negative effect on some owner-managed businesses who have got used to 10 years of ultra-low interest rates. The increased cost of borrowing will stretch margins for existing businesses and may put people off working for themselves.
With two additional rate rises being forecast by 2020, it is essential that freelancers factor future rate increases into their business plans.
As a leading body representing independent professionals, freelancers and the self-employed throughout the UK, IPSE is tentatively positive about the interest rate rise.
Tom Purvis, the organisation’s Economic Policy Advisor commented:
“In some ways the rise in the interest rate may help self-employed people, but in other ways it may lead to difficulties. On one hand, the rise should lead to a strengthening of the pound. This will reduce costs for self-employed people who import resources such as software. However, it will also lead to an increase in the cost of borrowing, which may prevent some people from entering self-employment as the cost of business loans and mortgages rises.”
“To combat these possible negative effects, the Government should avoid any changes that will do further damage to people who choose to work for themselves. At a time when low productivity is causing problems for the UK economy, the Government must do more to support the self-employed and ensure they can use their invaluable expertise to improve productivity for businesses across the country.”
“The Bank of England needs to continue to provide ample guidance about their economic forecasts. With confidence in the UK wavering, the self-employed must be reassured about inflation, exchange rates and economic growth. With this reassurance, they will be able to make informed investment choices that will benefit the UK economy”.
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