(Finance) – High interest rates are putting severe pressure on British companies. A scenario that represents a threat to investment and employment, in which the risk of corporate default increases. This is the alarm raised today by Bank of England. According to an analysis published on the BoE blog, the share of UK non-financial companies in debt servicing difficulties – those with a low ratio of earnings to interest expenses – will rise to 50% by the end of the year, from 45 % registered in 2022.
A percentage that rises to 70% for the medium-sized companies, those with an annual turnover of between £10m and £500m. In this scenario, corporate debt stress would reach its highest level since the 2008-2009 financial crisis.
“Higher interest rates are putting pressure on indebted firms through higher debt service costs. This pressure increases the likelihood of corporate debt defaults and could lead some firms to drastically reduce investments and the occupation”.
The UK interest rate rose from record low of 0.1% in November 2021 at the current 5.25%. The BoE’s analysis used market expectations that the rate will rise to 6.1%.
“The BoE’s analysis – he declared David Bharier, head of research at the British Chambers of Commerce – is consistent with what he’s heard from thousands of small and medium-sized businesses.”