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How have record low interest rates affected businesses?

Date Added: 12/11/2013  

Although interest rates have been cut twice by the European Central Bank in the last few months, the Bank of England has kept the UK's rate stable since March 2010.

While low interest rates are usually good for businesses as lending becomes more available, this has not proven to be the case and many firms are struggling to access funding.

Business lending in the UK has been dropping since the recession as banks become more risk-averse, leaving a lot of companies short of options when they need an injection of cash. Blocking firms from growing in turn damages the UK's economic recovery.

As much as alternative funding methods have attempted to fill a gap in the market, a lack of available loans from high street banks has increased the pressure on business owners.

An independent review of business lending practices at Royal Bank of Scotland (RBS) recently found that three in ten of its small-business lending customers do not believe it was "open for lending" - an assessment that RBS chairman Sir Philip Hampton said he agrees with.

"Five years ago we were lending to anyone with a pulse, but now there's too much 'computer says no' and an over-reliance on slavish risk models," he said, reports the Independent, adding: "We need a bit more imagination because we are open for business but are not lending."

With the Bank of England's new governor Mark Carney having previously stated that interest rates will be held until unemployment falls to seven per cent, it seems any increase could be some time away. A new report from the Chartered Institute of Personnel and Development has also found employers are cautious about hiring in the medium to long-term.

Ross Smith, director of policy at the North East Chamber of Commerce, stated that he is in support of low interest rates, reports the Northern Echo. He said: "We're seeing positive investment, which has been a long-time coming and we don’t want to erase this by normalising the interest rate as this would be too hasty at present."

Whether low interest rates are good or bad for businesses overall, it seems inevitable the current situation will be held for the foreseeable future.

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