The Bank of England raised interest rates by 0.5% to 4pc. This is the highest rate since the financial crisis.
The escalating cost of borrowing caused a stock market sell-off last year, after a decade of debt-fueled growth.
Some stocks are more susceptible to rate increases than others. The Telegraph examines which British shares are most vulnerable to rate rises as the Bank Rate continues its upward climb.
Higher interest rates are used by policymakers to encourage people not to borrow or spend but to save. While this is a great tool to fight inflation, it also means that consumer-facing businesses will struggle as household budgets tighten. Experts warn Curry’s electronics retailer could be in trouble.
Sophie Lund-Yates of Hargreaves Lansdown said that “Currys sells high-end electric gadgets, from washing machines to laptops.” These are precisely the items that people avoid buying when economic conditions are difficult.
Ms Yates noted a 6pc decrease in sales during the 10 weeks ending January 7, which is usually the peak trading period.
She said that although performance was better than expected, it doesn’t mean the group is thriving. There is a lot of competition in the electrical sector, and many customers are looking online for the best prices. Curry’s operating margins are already very thin and are expected to shrink by 1 per cent for the entire year.
When their finances are tight, households will likely reduce unnecessary spending such as take-out dinners. Deliveroo, a takeaway delivery service, could be affected by people choosing to cook at home over ordering in.
Ms Yates stated that Deliveroo, which specialises in high-end restaurant-grade takeaways and lower margins, is facing a difficult situation. She said that if the group loses consumer confidence, it will likely cause further problems with profitability.
She said that there is a possibility that some customers will choose Deliveroo over a more expensive meal at a restaurant. However, the net effect of rising rates on prices is likely to prove to be difficult.
Experts warned that Rolls-Royce, an engineering business, is also susceptible to rising rates. Hargreaves Lansdown’s Susannah Streeter warned that future growth could be limited by the firm’s debts.
She stated that the company currently benefits from a fixed rate of interest [on existing borrowing] so it is not in danger. However, its debt burden will limit investment in other areas of potential growth.
Rolls-Royce shares have lost 10% of their value over the past year but have rebounded to 18% in the last six months as air travel has steadily improved and investors bought cheap stocks. Rolls-Royce may feel the effects of reduced demand from the airline industry to which it supplies engines, however, as household finances are tightened.
Ms Streeter stated that “long-haul travel tickets are more expensive than ever as the cost of living increases.”
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