The Bank of England (BOE) today announced that interest rates have risen to 5.25% – another 0.25 percentage point increase – marking the fourteenth hike amidst the BOE’s bid to reduce widespread inflation. Claire Trachet, CEO and founder of business advisory, Trachet, highlights the implications of a further interest rate rise for this year’s investment outlook and how this will affect startups, the tech sector and investors alike:
 
Claire Trachet (CEO/Founder of Trachet) is available to comment on:

• The impact of interest rate increases on the UK business landscape
• The impact of interest rate increases on the tech startup ecosystem
• The evolving nature of tech investment avenues in the UK
• Her experience in providing structure to scale-ups looking for finance
• The challenges that tech startups will face in trying to scale up over the next 18 months

“Today’s interest rate announcement, although expected and necessary, continues to bring uncertainty to the UK’s investment ecosystem – ultimately impacting recovery for the remainder of the year and impairing growth going into the Autumn. 

“The current economic climate is presenting major challenges for companies with limited cash reserves. The Bank of England announcing an interest rate rise to 5.25% coupled with an inactive IPO market, means scaling businesses – predominantly in tech – are finding it increasingly difficult to secure funding. This is a significant concern for even healthy privately-owned companies, as declining shares of similar publicly traded firms can lead to a decrease in their value. We know companies will have to make difficult decisions and give up a larger portion of their equity in order to raise the same amount of cash and expect this to result in a growing number of down rounds in the coming year.

“The uniquely favourable conditions experienced in the past decade are unlikely to return, these conditions were defined by a prolonged span of exceptionally low global neutral interest rates, plentiful resources, and limited inflation. Therefore, investors and businesses alike should adapt to the current market conditions by focusing on value creation and profitability over headcount growth and valuations.

“The UK faces significant structural challenges from a macroeconomic perspective. Despite deal volumes decreasing by 55% in the first half of 2023 compared to 2022, the UK remains the most appealing investment option for European investment. While it may not be the most vibrant global market right now, the UK presents an opportunity to acquire exceptional businesses at discounted prices – mitigating the impact of interest rates on leveraged buyouts from private equity. Therefore, I believe that the UK’s current state offers a unique chance for strategic investment presenting a clear opportunity for the startup and scale-up community, particularly in tech. Tech investment was a sector that was highly regarded for investors and lenders, and contributed to high revenue, however it has become evident for many investors this is now an investment the bank will not recover – this will likely spark a wave of M&A activity in the sector.”