Interest rates cut means 'sector will suffer in short term'

Charity finance experts warn of difficult times ahead

Yesterday's interest rate cut to its lowest-ever level will have a negative short-term effect on the voluntary sector, according to charity finance experts.

Keith Hickey, chief executive of the Charity Finance Directors' Group, said that the interest rate drop, combined with the Government's plans to loosen monetary policy, suggested charities should prepare for difficult times.

"I think it's very clear that the recession is going to be very hard," he said. "Charities depending on investment income are going to find things very difficult."

He warned that some charities had a lot of money saved in fixed high-interest rate deals that would not be available to renew when they expired.

John Kelly, head of client investment at investment house CCLA, said that because, on balance, charities saved more than they borrowed, they would suffer from the interest rate drop.

"Interest rates will remain low for a long period of time," he said. "This means charities need to ask some hard questions about what they actually need. The good times when you can have your cake and eat it are gone.

"If you want to earn income, where do you go? Bond funds offer reasonable levels of return, but they aren't risk-free."

However, James Brooke-Turner, finance director of grant giver the Nuffield Foundation, said he agreed the country faced a period of prolonged economic hardship, but the interest rate change itself could leave many charities largely unaffected.

"It will not have much effect on us and many other charities," he said. "Many charities spend money and earn it."

He said that if the drop in rates stimulated the economy, charities would reap the benefits in the same way as everyone else.

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