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Corporate profits exposed in 2016 as interest rates set to rise, IoD warns

September 22 09:05 2010 Print This Article

Weak inflation and the prospect of rising interest rates in the UK will leave corporate profits exposed in 2016, the Institute of Directors (IoD) has warned.

The Bank of England is widely expected to raise interest rates in May after no change in more than six years.

Historically low rates have helped company profits, excluding banks, reach record highs over the past years.

Corporate profits came to £77.2bn in the third quarter, according to official figures, a touch below the £77.4bn high set in the same quarter a year earlier.

However, profits are expected to lose momentum in the new year as borrowing costs are set to rise and low inflation has removed “pricing power” from companies, the Telegraph reported, citing the IoD’s chief economist James Sproule.

Sproule said “we have been living in a world of extraordinarily low interest rates for eight years” and the UK is now at risk of seeing asset bubbles develop.

He also warned that employment numbers may fall next year after a strong market this year.

“Too often we only see how good things are in retrospect, so remember the situation now. The more there is a clampdown on immigration, the more businesses are going to have difficulty finding the people they need to expand and thrive,” Sproule said.

The IoD, however, expects improved productivity growth next year, which may support wage increases and add to the case for higher interest rates.

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Mark Winterberg
Mark Winterberg

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