Debt headache as just a quarter of execs have experience of higher interest rates
"For many of the people tasked with tackling higher interest costs, this is a new challenge," Nick Forest, a partner at the firm said.
The vast majority of businesses are navigating the transition to higher interest rates without executives who have experience of elevated borrowing costs, a new report suggests.
According to a report from consultancy firm Baringa, just over a quarter (27 per cent) of senior financial executives were involved in decision-making before 2008, the last time interest rates were this high.
“For many of the people tasked with tackling higher interest costs, this is a new challenge,” Nick Forest, a partner at the firm said.
Central banks all over the world rapidly hiked interest rates in 2022 and 2023, bringing to an end the post-financial crisis era of ultra-loose monetary policy. The Bank of England raised interest rates fourteen times in a row, bringing interest rates to a post-financial crisis high of 5.25 per cent.
This has put up borrowing costs for firms, contributing to a wave of insolvencies. Last year, 25,000 firms went under – a thirty year high. Some forecasters suggest this could be surpassed this year.
“The last time we had such high interest rates was over fifteen years ago, when many of today’s decision-makers were early in their careers,” Forest said.
“They face the challenge of adapting to a new macroeconomic backdrop: the tools and techniques which got them through the last ten years are not the tools and techniques needed for the next ten months,” he continued.
Baringa believes companies are experiencing the largest such hike in debt-related costs ever faced by the UK private sector, with debts worth £1.6trn due for refinancing between 2024 and 2030.
In 2024 UK firms will pay an extra £5.9bn extra to service their debt, a figure which will peak at £7.2bn in 2026.
Two-fifths of firms (39 per cent) reported that they might “struggle to survive” despite having some cash reserves at present. Three quarters (74 per cent) said their products will become more expensive for their customers as a result.
Baringa surveyed 250 chief financial officers, treasurers and financial directors at “large” UK companies
