Thursday to mark 13th interest rate hike since 2021​

By Jake Rickman​

What do you need to know this week?

Interest rate hikes are back in the news, as the Bank of England is poised to raise interest rates another 25 basis points from 4.5% to 4.75% tomorrow. As the FT notes, this will be the 13th consecutive increase in interest rates since December 2021.

This comes as the Bank of England tries to get ahead of more troubling inflation numbers. Last month, inflation figures unexpectedly increased, following a slight decrease in April. Analysts generally attribute this to a sustained increase in food and grocery prices, as well as a modest uptick in wage growth.

Worryingly, the UK seems to be experiencing above-average inflation levels compared to other G20 nations like the US and Germany.

Why is this important for your interviews?

Just like the Bank of England has raised rates 13 times, so too has a TCLA article returned to interest rates as a topic for its weekly commercial newsletter.

As far as commercial developments go, this has become a perineal issue. Since 2021, an all-too-familiar pattern emerges: central bankers awaken from their proverbial slumber aghast at another surge of inflation figures, despite previous assurances that inflation is on the mend (or, as the case was back in late 2021 and early 2022, “merely transitory”).

The reason we keep returning to inflation and interest rate hikes is that interest rate movements are one of the most singularly determining factors affecting the commercial world.

Many analysts, investors, and senior managers are coming around to the realisation that we have entered a new market environment very different from the one we enjoyed for the decade between 2012 and 2022. Because interest rates are significantly higher than they were during the previous period, credit — loans, bonds, and other borrowings — is no longer cheap. Businesses (and homeowners) have to pay much more to access financing. This in turn has reshaped the investment strategies of senior managers and institutional investors.

For these reasons, staying on top of inflation and interest rate figures is a great way to ensure you have something relevant to discuss during interviews.

How is this topic relevant to law firms?

When assessing commercial developments, our goal should always be to analyse and conclude how the story impacts law firms. Broadly, you can approach this from two angles:
  1. How does it impact clients?
  2. How does it impact the business strategies of the law firms themselves?
Commentators have most recently zeroed in on how the latest rounds of interest rate hikes are squeezing residential homeowners with mortgages. For commercial law firms, this in and of itself is unlikely to be of direct relevance. However, law firms with real estate groups that advise large-scale residential home builders on the construction and sale of large developments are likely to see a decrease in fees, as their clients withdraw from the market due to slackening demand for home purchases.

In terms of tailoring this talking point to your interview, this is likely to be relevant to firms with strong non-contentious construction arms, especially those firms with a strong presence in the regions.