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The recovering economy: an environment of continuing uncertainty

Despite a wealth of indicators highlighting an improving economic environment in the UK, a number of uncertainties remain. The highly competitive UK market, sluggishness of the Eurozone economy, and potential path of UK interest rates all present distinct challenges for individual businesses. The upcoming General Election potentially adds a further note of uncertainty.

How a rise in interest rates impacts an economy that is still in recovery mode is clearly an important factor in the sustainability of growth. Bank base rate has been held at the current, historic, low of 0.5% since March 2009. It has of course been well sign-posted that when interest rates eventually start on an upward course, they are likely to rise in a gradual way, before settling at a level that would still be relatively low in historical terms. In some respects, only the specific timing of the first and subsequent movements in interest rates has really been in question. 

So, in order to understand how the economy is likely to fare, once the interest rate environment changes, it is important to understand how sensitive individual UK businesses may be to the initial increases in interest rates that will take place. Moreover, if the path of interest rates does follow the course expected, what tangible impact will this have on the business community? In theory, it could have an influence on a number of different aspects of the way individual businesses think and operate as well as, more directly, on their finances and cash flow and the trade credit risk to which they may be exposed. 

Business insurance specialist, QBE, has been monitoring business perceptions of risk, and the associated corporate risk management agenda, since 2013 and is pleased to share the findings from this, the third, wave of its Business Risk Sentiment Survey – which includes analysis on the potential impact of interest rate changes. Interviews with 376 key ‘risk’ decision-makers from small, medium sized and larger businesses were conducted in November and December of 2014.

The latest survey results underline the complexity of the risk management challenge currently facing individual businesses and confirm that risk profiles are in a state of continuous flux. Many businesses have taken on a range of ‘completely new’ risk exposures over the last six months. And most risk decision-makers expect the likely course of interest rates over the next two to three years to have a tangible effect on at least one aspect of their own business. From the feedback given in the first two waves of the Business Risk Sentiment Survey, it has been apparent that many business risk decision-makers acknowledge a need to strengthen, enhance and support their approach to managing risk. The latest findings provide ample evidence that a continuing investment in risk management systems and processes will be important if businesses are safely to navigate the next stages of economic recovery.

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