Lancashire businesses urged to prepare for further interest rate rises

The Bank of England’s decision to raise interest rates for the first time since August 2023 will increase financial pressure on businesses and households across Lancashire, with further increases potentially on the horizon.

That is the verdict of emeritus professor Joe Nellis, head of economic research at north west accountancy and advisory firm MHA.

As anticipated, interest rates have risen for the first time in more than three years, from 3.75 per cent to four per cent. The decision follows a rise in consumer price inflation, to 3.5 per cent in September.

Joe said: “The decision was widely expected but it still marks a sharp change of direction after the run of rate cuts that began at the end of July 2024. The battle against inflation has entered a new and more challenging phase as we head towards 2027.

“This is unwelcome news for an economy that has just been forecast by the Office for Budget Responsibility to slow down and grow by only one per cent next year. Higher borrowing costs will add more pressure on households already facing a renewed squeeze on living costs. Rising interest rates will also hit businesses and mortgage borrowers.”

The rise comes just over a week after chancellor John Healey delivered his first Budget. Joe said higher interest rates, in addition to rising gilt yields, would increase the cost of servicing national debt, eroding the government’s fiscal headroom.

He said: “The big question now is whether this is only a one off precautionary move on the part of the Bank of England or the beginning of a series of rate rises.

“The next vote will depend heavily on the inflation figures due for release on 18 November, and whether energy prices start to show any sign of easing. 

“The Bank of England expects inflation to climb still higher – to above four per cent early in 2027 – as spikes in energy costs feed through in the next few months. With core inflation at 2.8 per cent and services inflation at 3.7 per cent, the Bank cannot take the risk of allowing underlying inflation pressures to become more entrenched.

“Unless inflationary pressures fade soon, borrowers should prepare themselves for interest rates staying above four per cent – and increasing further – during the first half of 2027.”