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Irish Businesses Face Mounting Cost Pressures from Interest Rates

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  Published in Science and Technology on Thursday, February 19th 2026 at 4:13 GMT by Irish Examiner
      Locales: IRELAND, UNITED KINGDOM

By Eoin Murphy, Economics Correspondent

Dublin, Ireland - February 19th, 2026 - Irish businesses are increasingly voicing concerns over a mounting wave of cost pressures driven by sustained increases in interest rates. A recent report indicates that a significant majority are struggling with affordability, leading to curtailed investment, hiring freezes, and a growing apprehension about the future economic landscape. The situation has prompted calls for more targeted government intervention to safeguard the viability of small and medium-sized enterprises (SMEs), the backbone of the Irish economy.

The initial rate hikes, beginning in late 2022, were implemented by the Central Bank of Ireland as a deliberate measure to combat soaring inflation. Starting from a historic low of 0.25%, the benchmark rate has climbed to 4.5% - a substantial increase designed to cool down an overheating economy. While the intention was to stabilize prices, the speed and magnitude of these adjustments are now proving detrimental to a large swathe of Irish businesses.

A comprehensive survey conducted by the Irish Small and Medium Enterprises (ISME) reveals the extent of the hardship. A stark 79% of respondents report a negative impact on their profitability due to rising interest rates. Alarmingly, 64% express worry about their ability to meet loan repayment obligations, painting a picture of mounting financial strain. The data further indicates concrete actions being taken by businesses to mitigate the pressures: 34% have been forced to scale back investment plans, potentially hindering future growth and innovation, and 21% have already implemented hiring freezes or reductions.

"The unrelenting succession of interest rate increases is breeding a climate of uncertainty and anxiety amongst business owners," stated Mark Fielding, ISME president. "We understand the necessity of controlling inflation, however, the pace and scale of these increases are proving unsustainable for a substantial number of enterprises."

The impact isn't being felt uniformly across all sectors. While tourism and hospitality continue to benefit from the post-pandemic rebound in demand, sectors like construction and retail are demonstrably feeling the pinch. Construction, already grappling with material costs and labor shortages, finds increased borrowing costs further exacerbating project viability. Retailers, facing decreased disposable income among consumers, are simultaneously contending with higher financing costs for inventory and operations.

Furthermore, the economic slowdown is becoming increasingly apparent. The ISME survey reports a widespread decline in sales and footfall for many businesses, suggesting that consumer spending is beginning to contract. This paints a worrying picture of a potential cycle where reduced demand further impacts business profitability, creating a downward spiral.

The Government has responded with initiatives such as the energy support scheme and a broader business supports package. However, business groups contend that these measures, while appreciated, are insufficient to fully offset the combined impact of rising interest rates and persistent inflation. There's a growing call for a more granular and targeted approach.

ISME is specifically advocating for measures such as targeted tax relief, direct grants to assist with operational costs, and improved access to affordable finance options. They argue that a 'one-size-fits-all' approach fails to adequately address the specific challenges faced by SMEs, who often lack the financial buffers of larger corporations. Some economists suggest the possibility of a government-backed loan guarantee scheme to encourage banks to offer more favorable rates to smaller businesses.

Looking ahead, the outlook for Irish businesses remains shrouded in uncertainty. While forecasts still predict economic growth, the consensus is that the rate of expansion will inevitably slow. The European Central Bank's future monetary policy decisions will be crucial in shaping the Irish economic landscape. A prolonged period of high interest rates could stifle investment, limit job creation, and ultimately lead to a recession. Conversely, a premature easing of monetary policy could reignite inflationary pressures, negating the progress made thus far. The delicate balancing act requires careful consideration and proactive government support to ensure the long-term health and resilience of the Irish economy.