Low interest rates mean great investment opportunities. But should your business bite the investment bullet?
With the recent news that record low interest rates will continue into 2012, we take a look at what it means to business owners – and why now could be the right time to bite the proverbial bullet… and invest in your business.
How do ‘low interest rates’ benefit businesses?
Lower interest rates make it easier for businesses to invest in areas of their business that will enable sustainability and ultimately growth. Also, the returns that investments will produce in future years are worth more today, when rates are low, than when rates are high. When interest rates are low, business is given an incentive to invest. Increased business investment, in turn, makes the economy grow faster, as productivity, or output per worker, increases faster.
A low interest rate means that businesses will enjoy the ability to finance expansion at a cheaper rate, thereby increasing their future earnings potential, which, in turn, leads to growth. Investors and economists alike view lower interest rates as catalysts for expansion.
Overall, the unifying effect of an interest rate cut (or low interest rate) is the psychological effect it has on investors and consumers; they see it as a benefit to personal and corporate borrowing, which in turn leads to greater profits and an expanding economy.
What does this mean for UK businesses in 2012?
In January 2012, the Bank of England policy makers announced that they have opted to continue with the freeze on interest rates as they attempt to bolster the UK economy.
The Bank’s Monetary Policy Committee has also resisted the temptation to pump more money into the economy in the form of October’s £75bn extension of Quantitative Easing. However, some believe that the predicted negative growth in the early part of 2012 will intensify the pressure to pump more.
Record low interest rates are said to be the ‘key to getting the economy moving in 2012’. A low interest rate is one of the factors that will give business the confidence and ability to invest – therefore, it is important that they are maintained at this current low level.
We believe that businesses really do need to bite the investment bullet if they want to survive today’s tough economic climate and ultimately grow and create jobs. Continued investment into areas such as your people, strategy, improved technology and innovation is important for your business success. Low interest rates give businesses a real opportunity and the ability to invest in key areas of their business. This is what is expected in the coming months ahead, especially as inflation is expected to start to come down this year.
James Knightley, an economist at ING Bank said he is more optimistic about the second half of 2012, when falling inflation will help ease the squeeze on consumers’ spending power, which has been behind much of the recent weakness in the economy.
As we start the year, businesses in the UK need to keep on pursuing growth opportunities. While the economic outlook for some sectors is tough, for others, opportunities exist to achieve growth and deliver healthy profits. For sectors where outlook is tough, careful decision making is needed as to the best way forward for the future of your business. Investment is key for future success.
How can we help your business?
With a mixed outlook on the economy as we start the year, here at Ascend Twentyone we remain optimistic. As always, we focus on a positive approach and look for cost effective ways of beating the reported gloom.
Ascend Twentyone can help you invest in your business by offering bespoke strategies and solutions to improve areas in your business that would enable sustainability and ultimately the fastest growth. We can point you in the right direction – helping you protect your bottom line and ultimately grow – get in touch now and take advantage of our experience.