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interest rates

 

In the UK, in recent times, the Governor of the Bank of England has dropped several hints that the Bank’s ‘base rate’ of interest could be rising. Once this happens, high-street banks usually follow suit and raise their interest rates, commensurately.

 

After a quite lengthy period of low interest rates in the UK (and worldwide), the slow recovery in the UK and world economy is expected to put growing pressure on a need to raise the interest rates, mainly as a counter to inflationary pressures that would be expected from new economic growth.

 

So, ‘if’ interest rates ‘did’ rise, what impact would this have on the day-to-day tasks of a management accountant?

 

Well, we can’t generalise for all organisations but, for example, we can maybe think of the following potential impacts from a rise in interest rates:

 

  • Variable-rate mortgages or loans will likely become more expensive, possibly putting strain on cash flow (and more)
  • There may be a shift in the cost-benefit analyses for common decision-scenarios such as: buy or rent property; purchase or lease motor vehicles; financing via loans or an overdraft; make or outsource; and much more
  • There may be a knock-on effect to exchange-rates which, in turn, can impact an organisation’s export and/or import costs

 

There are many other ways that a rise in interest rates will impact the daily routines of a management accountant. Of course, these management accountants will want to gauge how likely the rises are to occur, and also the potential for additional rises in the medium and long-term future (i.e., is the rise a short-term or long-term expectation?).