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Interest rates rise sparks fear over dealers' profits

Leading industry figures are calling on the Bank of England to keep interest rate rises to a minimum following last week's increase, the first for nearly four years.

The move sparked fears over dealer profitability at a time when margins are being squeezed as they invest to meet new contract standards under the revised block exemption regulations. The increase from 3.5 to 3.75 per cent came as no surprise to many in the motor industry – note AM's Big Picture, August 22 – and follows pressure by the European Union, which is concerned that consumer debt and rising house prices in the UK are reaching dangerously high levels.

Matthew Carrington, chief executive of the Retail Motor Industry Federation, warns the move is a concern for automotive businesses.

“Even small base rate rises will increase costs for many businesses operating in the industry at a time when margins are very thin. This is going to add to the burdens of companies struggling to survive,” he says. Carrington is calling for the rate rises to be kept to a minimum.

Despite the fact that the increase returns the country to the rate of just a few months ago, Derek Simpson, general secretary of the Amicus union, which has recently overseen pay talks at Peugeot and Land Rover factories, warns: “For every quarter point increase in rates, 50,000 jobs will be lost in manufacturing.”

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