Interest holds rates at 5.25% – business industry reaction

The Bank of England has kept interest rates at 5.25%, a 16-year high, with a majority of the Monetary Policy Committee (MPC) agreeing that further evidence of diminishing inflation persistence was needed before reducing the degree of monetary policy restrictiveness”. The MPC voted 7-2 in favour of freezing the base rate.

Following the decision by the Bank of England to hold the base rate at 5.25%, Federation of Small Businesses (FSB) National Chair Martin McTague said “Yet again, the MPC has opted to stick instead of twist, a move which was widely predicted but which is no less disappointing for it.

“The high plateau rates are currently stuck at is now undermining growth, as small firms struggle to access affordable finance to help them expand.

“Inflation is now back on target, and holding off a cut in the base rate until a future date risks snuffing out tentative signs of a recovery in GDP, with the flat growth in April a warning sign.

“Even with services inflation coming in higher than expected yesterday, the danger posed by stifling growth must not be ignored, as doing so will have potentially devastating consequences for small businesses.

“Small firms will be hoping that the tipping point for a cut will be reached sooner rather than later, to help them invest and scale up.”

Michael McGowan, Managing Director, Foreign Exchange, Bibby Financial Services said“The Bank of England’s decision to hold rates, despite a recent drop in inflation to 2%, was expected and appears to reflect a ‘wait and see’ approach until a new government has been elected. It means SMEs will need to wait longer for the confidence boost they need to enable them to invest in growth. Given that SMEs make up 99% of the UK’s business community, this decision also means the significant contribution they can make to the UK economy overall will be kicked further down the road, likely until after August.”

David Bharier, Head of Research at the British Chambers of Commerce, said “Today’s decision was widely expected, and it’s clear the Bank of England is taking a cautious approach before making a much-anticipated rate cut.

“Yesterday’s data showing CPI inflation on target was encouraging. However, service sector inflation and average earnings growth remain relatively high – two metrics the Bank will be focused on.  In line with the easing inflation rate, our latest forecast expects the Bank to cut the interest rate to 4.75% by the end of the year.

“Rate cuts, when they come, will provide welcome breathing space for the companies we represent across the UK. Our research shows that while business concern about the cost of borrowing has been easing it remains at historically high levels.  Many firms have told us they have been put off from investing due to high borrowing costs, and this has no doubt been a drag on overall economic growth.

“A rate cut will help encourage businesses to invest, but policymakers need to look at a much broader range of measures to support long-term growth. “Our election manifesto calls for immediate action by the next government on a green industrial strategy, better skills planning, business rate reform, improved relations with the EU, and support for SMEs to embrace AI.”