2. Specification Detail
How changing interest rates affect small firms which
tend to rely on overdrafts and loans for finance
The impact of changing interest rates on consumer
spending
3. What are Interest Rates?
Interest rates is the annual percentage change made
for borrowing money.
4. How do interest rates change?
Interest Rates are set by the Bank of England who
meet each month and can decide to change the rate
of interest people should pay (Interest Rates).
They will make this decision with the interests of
society in mind. It is based on some of the following
factors:
Employment
Housing
Government Debt
Exchange rates
Foreign investment
5. Interest Rates affecting small
businesses
The Bank of England then lends this money to the
banks such as Barclays, Lloyds, NatWest etc.
What affect does this then have on:
Loans
Overdraft
6. How do interest rates change
consumer spending?
High interest rates:
Households with mortgages (money borrowed from the
bank), need to pay more each month to pay off their house
The fixed overheads (repayments) increase.
This could mean cut backs on business investments (it will cost too
much to borrow money)
Or cut backs in staffing
Low interest rates:
Households with mortgages, will pay back less each month to the
bank and have more money to spend.
Money is cheaper to borrow from the bank, making expansion
easier
