“What if…?” is a question that can be heard in boardrooms all across the country. What if our marketing strategy fails? What if that strike in Venezuela sends copper prices soaring?

And perhaps most terrifying of all – what if the Bank of England raises interest rates again?

That last fear became reality in January when the Monetary Policy Committee added a quarter-point to the base rate for the third time in six months, taking it to 5.25 per cent.

Perhaps it should come as no surprise that the increasingly modernist Bank chose last month to launch a film entitled What If? It is a 30-minute film that follows the trials and tribulations of a fruit juice entrepreneur.

Sadly, rain clouds gather, both literally and metaphorically, as bad weather combines with a surge in interest rates. There are scenes of striking workers and boarded up retail units.

“When inflation reaches high levels, that can have damaging effects on the economy,” says the voiceover.

Our retailer is forced to put up her prices, her debt-laden customers shun her stall and the news reports mass redundancies, a slump in house prices and billions wiped off the value of the stock market.

Cue Mervyn King, governor of the Bank of England, to soothe our heated brows. “It is the Bank of England’s job to make sure that conditions like that do not occur,” he says. “We need to anticipate the problems that might occur and ensure that they don’t.”

In retrospect, the only surprise regarding the increase was the timing. The Bank had made it clear it was worried that inflation was gathering pace and that workers would seek to recoup some of their lost purchasing power through higher wage claims.

Economists were correctly predicting that rates were on their way up again but were fooled by the Bank’s record of changing course in the months. Certainly the increase in the base rate has not made an FD’s life any easier.

Variable and short-term loan costs have gone up, as have longer term interest rates as the financial markets price in more rises to come.

One can make a few observations about the profit and loss account for this year. The wage bill is likely to rise by more than last year and raw material costs will take a larger chunk out of the cash flow, as will interest charges.

On the plus side, firms are becoming more successful at passing price rises on to customers. Consumer-facing businesses should expect slackening demand as the rises bite and the housing market cools.

A little over three years ago, the UK had enjoyed a NICE period – non-inflationary continuous expansion. A year later King described the coming period as NOTSOBAD – not of the same order but also desirable.

After the events of this year, companies could be forgiven for feeling that things are looking pretty nasty.

So what is the outlook? The Bank’s inflation forecast, published in February, showed inflation overshooting the two per cent target with rates on hold, but hitting it if rates follow market expectations and reach 5.5 per cent – a pretty strong hint.

But the bank is aware that each increase raises the risk of a hard landing for the property market. Companies that hedged against a currency rise and locked in their lending rates should have done enough.

Towards the end of What If?, King returns to one of his favourite themes. “Our aim is to make what the Bank does in the economy extremely boring.” BORING? That must be benign outlook reasonable inflation ’n’ growth.

Related tags: interest rates, bank of england, mervyn king, inflation, monetary policy committee,