Firms across many advanced economies have faced a significant increase in the interest rates paid on borrowing and received on deposits since 2021. Krishan Shah, Nick Bloom, Philip Bunn, Paul Mizen, Gregory Thwaites and Ivan Yotzov use new data from the UK to study how higher interest rates are impacting their sales, employment, and investment decisions. By the third quarter of 2023, firms report that higher interest rates had lowered investment and employment by 8% and 2%, respectively. This reflects both the direct impact through the higher cost of capital, as well as indirect impacts through reduced demand. Firms which are most reliant on external financing to fund investment report the largest decreases in both investment and employment as a result of higher interest rates.

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26 April 2024

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Vox EU

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https://cepr.org/voxeu/columns/impact-higher-interest-rates-uk-firms

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This publication comes under the following theme: UK productivity and policy