Small business owners' reaction to interest rate increase and UK being in recession

I am a former Enterprise Nation member. I own a small, home-based business in Edinburgh selling hand-dyed yarns and fibres for spinning and felting. As someone who moved from Portugal to the UK more than 10 years ago in search of a better life, I would never dream I'd see this nation fall into such a political shambles and troubling recession. It's like watching a terrible movie playing out, and the victims are not the other actors, it's the viewers. My yarn business is owned and managed by me alone, so I am fortunate to not have to worry about firing employees and left feeling bad for protecting the core bread earner. However, my plans of expanding from my home studio to a proper business premises have been put on hold indefinitely, since I don't want to hike up my expenses. The materials I work with - wool, yarn and dyes - have become more expensive since Brexit, and I can only expect prices to continue to rise. I'll have to protect myself by switching to a pre-order system, where customers pay to get an item I haven't yet created. This will keep costs to a minimum. Energy bills are also a worry. I have turned down my thermostat and will be working indoors with extra layers on. I'll have to make sure all of my yarn dyeing sessions are planned in a way as to minimise energy usage, even if it means I'll have to do more hours in fewer days. Let's also not forget the toll this shall have on many business owners' mental health. We are meant to be creative, come up with ways to rise above the crisis and pretend all is fabulous on social media. Goodness forbid we show weakness. At the end of the day, I am left wondering how many small businesses will survive, how many of us will be suffering in silence, and how I'll be paying the bills at the end of each month. Living in the UK, I never imagined this would be happening to me.

“The most recent economic forecasting from the Bank of England does add some light relief in contrast to the base rate. Businesses will welcome the news of a predicted drop in inflation from the middle of next year and this should hopefully provide some certainty in planning and growth projection moving forward. However, very few businesses have the luxury of using their own working capital to invest in growth plans right now, or even to help them weather the storm that rate rises like this will bring. Some will worry about the cost of borrowing alongside other rising costs, whether that’s energy, stock and materials or personnel. Businesses' appetite for growth has not dwindled and should not be put on the back burner, particularly at a time where businesses need to feel confident in investing and in their future. Whilst the circumstances surrounding the economic landscape in 2022 were drastically unpredictable, businesses are far more agile and resilient now. SMEs need to continue exploring all available options to them right now and with the help of their trusted financial partners, they should be able to secure the right level of support they need.

2022 has been a year where each difficult situation has been replaced by a wholly new and even more difficult situation. This time last year we were all beside ourselves with worry that inflation would hit 3% pre-Christmas and impact the Christmas selling period. Fast forward 12 months and we’re now worrying about the potential of hitting 13%. The general public’s wallets have closed up to cope with the coming economic winter and the cash just isn’t flowing. As a small business owner casting a hawkish eye over every expenditure has become a more frequent habit. I am also spending more time on managing late payments, which is the single biggest influence on cash flow for a small business. As a marketer I absolutely subscribe to the notion of marketing yourself out of a recession. We did this during Covid for ourselves and our clients, and now we’re doing it again. Perseverance and consistency are key to keep reminding your customers that you are still there, and your business is still stable. As some of your competitors pull back their marketing efforts, your share of voice gets bigger. This builds into the longer term plan of being there to activate that audience when they are ready to start spending again. We’re guiding the brands we work with to weather the storm in this way, and we’re adhering to our own advice on this, too.

As a home-based business who was thinking about relocating into business premises, I have now put this on hold. Now is not the time for increasing my expenses, and instead I am hunkering down, reflecting on my cashflow forecast and re-assessing every item of expenditure going forward. This isn't the first time I have put my business outgoings under such scrutiny. I did this during Covid so I am aware there is little opportunity for further reductions, but I am repeating the exercise with every item, just for my own peace of mind. The agility and frugality of a small business owner can never be underestimated, but the signs are worrying. With 500,000 small businesses who have already closed, I worry for the future, not just for myself but also my business friends. We urgently need stability and clear plans for support. The Government (and the Bank of England) need to take note. There are 5.5m of us and we won't go gentle into that good night.