How a rise in interest rates will affect contract workers

Last week Andrew Haldane, Chief Economist at the Bank of England, commented in a speech that ‘interest rates should remain low to avoid long-term economic stagnation’. Despite this positive outlook a rise in interest rates is imminent according to many sources with a recent report by The Guardian suggesting this rise is now looking to be likely around August 2015.

A public poll on the The Telegraph’s website highlighted that 45.24% of voters believe interest rates won’t rise until 2016 or later, according to a survey of 3,203 people. However controversial to public opinion, the Bank of England policy maker Martin Weale believes ‘now is the time to tighten monetary policy’, voting to increase interest rates for the past two months.

“No-one can predict when the banks will move on interest rates given the many different factors involved,” commented Keith Faulkner, Chair of tempo, an alliance dedicated to raising standards in the temporary recruitment industry. “However my current view is that it will be the autumn of next year, probably in September or October 2015.”

“With the general election in May, many businesses are nervous as the outcome is so uncertain, with a probably fragile coalition of some sort a likely outcome. If business sentiment is remaining weak when interest rates rise, the uncertainty could result in more businesses using temporary labour rather than employing more permanent staff. So for contractor workers this rise in interest rates may mean a rise in job opportunities.”

“For businesses using temporary labour” continues Faulkner, “Tempo believe it is important to look very carefully at the agencies you use, especially once interest rates rise. Ensuring agencies are operating in an open and ethical way and understanding how they are adjusting to the change in the economy, is important to ensure continuity and reliability of staffing services.

As for recruitment agencies, interest rates will have a negative impact on their cost of borrowing, for those relying on factoring or invoice discounting to pay their workers. Smaller agencies working on these models may find this the most difficult and it’s possible the industry may see a number of agencies disappearing altogether as a result of an increase in interest rates. Furthermore the increased cost of borrowing may cause a downward pressure on margins, having a knock on effect which, in some cases, could result in decreased pay rates for contract workers”.

Phil McDonald, Managing Director of Paraplus, the UK’s fair and ethical umbrella company thinks contractors may suffer the most when interest rates rise. “When the cost of borrowing increases for agencies, contractor wages could well be affected. For contractors, planning ahead is important and there are a number of things that can be done now to ensure the rise in interest rates has the least impact possible on temporary workers. ”

To read the full article from Paraplus on ‘How a Rise in Interest Rates Will Affect Contractors’ click here.

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