Small firms should 'shop around for loans'

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Small firms should 'shop around for loans'

Fri 8th Jun 2007

Small firms should shop around for fixed-rate loans as interest rates climb to their highest level in seven years, the Forum of Private Business (FPB) has warned.

Although the Bank of England's monetary policy committee (MPC) decided to freeze rates for the time being, most analysts have interpreted this as a sign that the Bank of England is waiting to see what happens to inflation.

The FPB warned that further increases could hamper the growth of small firms advising them to shop around for fixed-rate deals now to avoid further rises.

Frank Peck, economic advisor at the FPB, said that further rises would make it "more difficult for smaller firms to absorb short term variations in these costs".

"What is interesting about the May rise in interest rates to 4.4 per cent is that the decisions of the MPC was unanimous - whereas meetings earlier in the year involved split decisions," he said, explaining that the unexpected rise of inflation levels to 3.1 per cent in March made subsequent rate rises more necessary.

Many financial experts believe that rates are set to rise again before the current cycle ends, with a growing proportion expecting to see interest rates reach six per cent this year.

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