Credit, Collections & Insolvency News
The Bank of England has cut interest rates to 4%, with the cut from 4.25% marking the fifth reduction since August 2024. The Bank of England’s Monetary Policy Committee (MPC) voted 5:4 for a cut. One voted for a 0.5% cut and four voted for rates to be held.
Responding to the news, Federation of Small Businesses (FSB) Policy Chair, Tina McKenzie, said “With many small firms undoubtedly facing difficult trading circumstances at the moment, the cut to the base rate will be warmly welcomed. After a prolonged period of high borrowing costs for small business owners seeking finance, and both commercial and domestic mortgages, this move offers small firms some much-needed relief while they face rising costs, weaker consumer demand, and tight margins.
“The small business community will now look to lenders to reflect this rapidly across their offering, cutting the cost of finance. They will also want to see the Bank of England set out a clear path for the rest of the year, with a further easing in the base rate badly needed to reduce the financial strain they are under.
“There will be no growth in the economy overall unless small firms are able to expand and fulfil their potential, but their confidence is still firmly in negative territory, according to our research. Lower borrowing costs will encourage small businesses to invest, giving the wider economy a much-needed fillip.
“A decrease in interest rates will also ease the pain caused by late payments, a perennial pain-point for millions of small firms – and something the Government has promised to tackle, with proposals to make the audit committees of large corporates responsible for payment practices to suppliers.
“The issue of personal guarantees, and the chilling effect they have on small businesses’ risk-taking and investment appetite, is also firmly on the Government’s radar, and is another area where we want to see swift and decisive improvements.
“Loosening the chokehold that personal guarantees place on small business borrowers will help unlock growth and expansion, especially when – as at present – they are applied in what many small business owners believe to be a blanket fashion, with little to no regard given to the size of the loan in question or the creditworthiness of the potential borrower.
“Action on these points would make a huge difference to small businesses, and we want to see the proposals turned into reality as soon as possible.”
James Burgess, Head of Commercial and Insolvency expert at Atradius UK, said “A decline in interest ratesis a welcome development for UK businesses, signalling potential relief ahead from high borrowing costs and paving the way for a more stable economic outlook. However, uncertainty remains, with consumer confidence and demand still fragile.
“To capitalise on this positive momentum, businesses should prioritise financial stability – through robust cash flow management, supply chain evaluation, and trade credit protection – ensuring they are well-positioned for growth when market conditions improve.”
Mike Randall, CEO at Simply Asset Finance said “As rates are knocked down another notch and with a further cut expected later this year, business leaders will undoubtedly be feeling more room to breathe – easing borrowing costs for those eager to invest in their growth this year.
“However, falling interest rates are just one metric reflecting on overall business’ confidence and their ability to invest for the year ahead. With limited GDP growth this year, and tax rises mooted in the impending Autumn Budget – economic recovery could still be fragile if left to stagnate.
“The focus now should be on unlocking potential, and enabling those that will help put our economy back on a positive trajectory; equipping SMEs with the funding and guidance they need to confidently take the next step.”
Dr. Arun Singh, Global Chief Economist at Dun & Bradstreet said “The Bank of England (BoE) has cut interest rates for the third time this year, reflecting growing concern over weak GDP and rising unemployment, which hit 4.7% in May, the highest since 2021. While inflation has risen in recent months, largely due to temporary factors like energy and water price adjustments, slowing wage growth suggests underlying pressures are easing.
“This rate cut should offer some relief to businesses, especially those in interest-sensitive sectors like construction, as lending costs remain significantly above pre-pandemic levels. However, with corporate bankruptcies still elevated – our own data showed business bankruptcies in the UK rose 13% between Q1 and Q2 this year – economic recovery remains fragile.1
“Unlike the European Central Bank more aggressive approach, we don’t expect the Bank of England to continue cutting rates at pace, given persistent above-target inflation and broader economic uncertainty. With pressure on the UK government to balance ambitious spending projects with their own fiscal rules, all eyes will be on the Autumn Budget that may pull the rug out from the economy with tax rises.”
Anna Leach, Chief Economist at the Institute of Directors, said “Today’s widely anticipated 25‑basis‑point rate cut—reducing the Bank Rate to 4.0%—provides welcome relief for households and businesses grappling with high borrowing costs. But the tight 5–4 vote, following an unprecedented second vote round, underscores deep divisions within the MPC. Most notably, Deputy Governor Clare Lombardelli joined the hawks in voting to hold, signalling caution amid rising inflation concerns. The minutes emphasise elevated upside risks to inflation, with the Bank now expecting a peak of 4% in September, driven by persistent food and wage pressures, and a slowing disinflation process. While policymakers reaffirm a “gradual and careful” approach to further easing, today’s split decision is a stark reminder that future cuts are not assured.”
Neil Rudge, Chief Banking Officer for Commercial, said “A cut to the base rate will be welcome news for many business owners. After an extended period of high borrowing costs, it offers a bit of breathing space – and perhaps a signal that conditions may start to ease. The first half of the year hasn’t been easy. Rising employer NICs and continued uncertainty in global markets – not least the impact of US tariffs – have added to the pressure. Even so, UK businesses continue to show real resilience. Many have stayed agile, adapting to changing conditions. While a rate cut won’t transform things overnight, it does help. As confidence returns, lenders need to be ready with practical, flexible finance to support those businesses looking to invest and grow.”
Alpesh Paleja, Deputy Chief Economist, CBI said “While interest rates are now at their lowest in over two years, today’s cut is line with the “gradual and careful” pace of loosening that the Monetary Policy Committee have flagged so far. Gradual, because the MPC is still caught between a rock and a hard place.
“On the one hand, the labour market is cooling and economic growth looks set to be weaker than the Bank expected, strengthening the case for faster rate cuts. On the other, even with wage growth easing, price pressures remain stubborn. Inflation has come in higher than the Bank anticipated, and households’ inflation expectations are still uncomfortably high.
“As the MPC continues to walk this tightrope, rate cuts are likely to remain gradual: we expect two more reductions, with interest rates settling at 3.5% early next year. But if the risks to the inflation outlook shift sharply in either direction, the pace of monetary loosening could look very different.”
Suren Thiru, ICAEW Economics Director, said “This cut in interest rates offers a well-timed helping hand to those households wrestling with high mortgage bills and businesses nervous over the prospect of more tax hikes in this Autumn’s Budget.
“Though rate-setters have been in policy loosening mode for a prolonged period, their particularly cautious approach means that interest rates are still high enough to be more of a hindrance than a help to businesses and households.
“The close vote split in favour of loosening policy suggests that policymakers are struggling to balance supporting a weakening economy with keeping a lid on rising inflation, inevitably casting doubt on further rate cuts this year.
“August’s policy loosening is likely the beginning of the end of this rate cutting cycle with the bank’s forecasts of higher inflation likely to push policymakers to press the pause button on interest rate cuts sooner rather than later.”