Interest rates hike expected to add just £2.5 million to the costs of business across Peterborough

Experts estimate yesterday's decision by the Bank of England's Monetary Policy Committee to raise the cost of borrowing by 0.25 per cent will add about £2.5 million to the finance costs of Peterborough businesses.

The hike brings interest rates to 0.75 per cent and means rates are at their highest level for about 10 years.

But Paul Brown, director of accountants Grant Thornton, in Cambridge, said: "In crude terms the 0.25 per cent rate rise announced would only add about £2.5 million to the finance costs of the Peterborough.

"So my overriding view is that that businesses in Peterborough will not initially feel too much direct pain from the interest rate rise."

In addition, Grant Thornton's analysis last year of the top 100 companies in Cambridgeshire, shows that the impact of new technology, and availability of people with the right skills feature in the top five barriers to growth.

However, financial matters, such as borrowing costs is seventh on the list of 15.

Mr Brown said: "Again, this suggests that business leaders on the whole will be less worried by this rate rise, than some of the other matters they face in managing their business."

The Grant Thornton survey also shows that last year Peterborough based companies had reduced their borrowings by one per cent while their costs of financing fell by 10 per cent to £41 million.

However, profits before tax and other deductions rose by 41 per cent and in total were eight times more than finance costs - a healthy insulation against rising costs of borrowing.

Mr Brown said: "Peterborough has a successful entrepreneurial spirit and one of the highest rates of new businesses formations.

" A trend of rising interest rates may have a greater impact on some of these early stage businesses and SMEs as these businesses often have a higher ratio of debt to net assets and haven’t yet built up profit reserves to the same degree as more mature businesses.

"However, access to alternative sources of funds is becoming a more important factor for our local economy and Peterborough is also seeing much more inward investment from equity providers and from local serial entrepreneurs."