By Steve Theaker,
of Peacheys

It's at this time of year that we all look expectantly forward to what the New year will bring. Often predictions are made on wheat has happened over the previous 12 months.

Since August 2006 the Bank of England has raised their base rate from 4.75 per cent to 5.75 per cent and then reduced it slightly to the current 5.5 per cent.

This action was in response to rises in inflation and continuing house price increases caused mainly by consumer spending and consumer credit spiralling out of control.

The credit crunch in the fourth quarter meant that loan funding was not so readily available and this has had a two-fold effect on businesses.

Firstly businesses who have borrowed money from banks and other financial institutions have a higher cost to their business.

Secondly, consumers with mortgages are paying more money to banks and financial institutions, hence their disposable income is reducing along with their ability to buy from businesses.

The tourism industry is extremely important to Wales and many of the hotel owners in the area have high levels of debt secured against their properties. This industry has been surviving on relatively low margins since the massive set back in recent years mainly due to natural disasters such as foot and mouth.

As a result many such businesses can ill afford to add additional cost without any tangible gain.

There are winners, of course.

Businesses with cash surpluses will benefit from the interest rate increase as the amounts received by them will increase. The downside of this is that corporation tax is potentially payable on these amounts, although Peacheys has a few ideas on restricting the tax due in this area.

What does 2008 hold?

The Bank of England base rate fell from 5.75 per cent to 5.5 per cent last month and rates are expected to all further as the Bank of England tackles the slowing economy.

Many expect it to fall below five per cent by the summer which will ease the strains that businesses have felt.

History suggests that five per cent is the average rate over the past century and this does not appear unreasonable as a prediction for the next year.

The Chancellor has decided on some Capital Gains Tax changes which are actually stimulating the private company mergers and acquisitions market.

For a free, no obligation meeting to see how Peacheys can guide your business in the right direction call 01633 213318 or e-mail solutions@peacheys.co.uk.