Low rates and high inflation take £7bn toll on business

British businesses are losing more than £7bn a year due to a combination of low bank interest rates and above-target inflation, new figures reveal.

Interest rates on business deposits are now at a record low, of just 0.59 per cent, and this combined with inflation running at 3.1 per cent mean that business savings are rapidly declining in value.

The amount of cash held in business accounts that offer no interest at all has also more than doubled since 2009: according to the Bank of England a record £52.9bn is currently deposited in accounts yielding 0 per cent interest.

Since the credit crunch, lending to small businesses has become a priority for the Bank of England, with initiatives such as the quantitative easing programme and the Funding for Lending scheme, but that has slashed interest for firms with cash holdings.

Mark Giddens, the head of private client services at accountancy firm UHY Hacker Young, said: "Firms with no current need to borrow are being punished for being prudent and keeping cash reserves. Under the Funding for Lending scheme, banks are now getting cheap funding from the Bank of England, which means they no longer need to offer generous interest rates to businesses."

"Businesses just aren't getting a good deal from their banks. In order to ensure they are making the best out of the bad situation, businesses need to be pro-active and shop around for accounts and other products that offer the best interest rate possible."