Bank of England holds rate at 3.75% – industry reaction

The Bank of England maintained interest rates at 3.75% in a 6-to-3 vote. The Committee said that it is appropriate to maintain the Bank Rate at this meeting. The Committee stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term.

Commenting on the announcement, Neil Rudge, Chief Banking Officer at Shawbrook, said “Against a backdrop of continued global uncertainty, the MPC has held interest rates in July. While recent movements in energy prices have eased from earlier peaks, they continue to contribute to an uncertain outlook for further rate adjustments later this year.

“SMEs remain understandably cautious as geopolitical events continue to unfold, with supply chain disruption and rising operating costs still creating challenges for many businesses. While the new Government may help improve confidence over time, business owners can benefit today from discussing their financing options with a broker, adviser or direct with their lender – whether that’s securing funding to support growth or ensuring they have the right level of resilience for the months ahead.”

James Burgess, Head of Commercial and insolvency expert at Atradius UK, said “Holding rates prolongs the squeeze on businesses – one that could worsen further if higher energy prices force a rate rise in the coming months. Firms are already stinging from recent tax increases and higher employment costs. They’re reluctant to invest and feeling the continued squeeze on profit margins.

“Our data shows that insurance claims for failed or late invoice payments are up 27% since December, which is often an early warning sign of trouble ahead.

“Businesses that actively protect liquidity, strengthen supply chains and safeguard their receivables will be far better placed to weather the shocks still working through the economy.”

Mike Randall, CEO at Simply Asset Finance, said “Holding interest rates offers a degree of stability, but it won’t make SMEs feel particularly optimistic while overall operational costs remain high.

“This highlights a need for flexible financing that can help fuel the SME funding ecosystem. Offering realistic lending models will be vital to ensure businesses can access capital on terms that reflect current economic pressures, rather than hitting a funding wall.

“From a policy perspective, a rate hold places the ball squarely in the government’s court. The new Business Secretary, Jonathan Reynolds, has been tasked with backing business investment, and there is no time to lose. Continuing initiatives such as the Growth Guarantee Scheme is a start, but businesses now want to see the government deliver on its promised reforms and make it easier for them to operate and invest.”

Charles Resnick, Chief Finance Officer, Afin Bank, said “The Bank of England remains in wait-and-see mode as the various economic and political developments play out, so a decision by the Monetary Policy Committee (MPC) to hold the Base Rate at 3.75% was always expected.

“We have a new Prime Minister and a new Chancellor, and while there hasn’t been any significant reaction to the appointments of Andy Burnham and John Healey, the market will be watching to see what policies are announced and how they will be funded.

“Pressure on households remains considerable, but while the Prime Minister has promised measures to help ease the cost-of-living burden, he has little fiscal headroom to do so, so initiatives announced so far have been modest and supposedly fully funded.

“Higher energy costs will hit customers later in the year, with inflation expected to rise towards 3.5% as a result. The MPC will then need to assess whether higher energy costs have fed into wages, prices and future inflation expectations before deciding about Base Rates, possibly at the November meeting.

“In the meantime, fixed-term savings deposit rates remain above Bank Rate, continuing to offer attractive returns for savers. For mortgage borrowers, lenders are likely to remain cautious as funding costs and mortgage rates remain high, while higher gilt yields and fiscal uncertainty should continue to support disciplined lender prices.”

Anna Leach, Chief Economist at the Institute of Directors, said “The MPC were expected to vote for a hold today, but now another member – Catherine L Mann – has joined Megan Greene and Huw Pill in proposing a rate increase. Ms Mann makes it clear that the collapse of the ceasefire between Iran and the US is the deciding factor in her change of vote.

“The Bank judges that underlying economic momentum is weak, and that this is helping suppress inflationary pressures. But that benefit is double-edged, both weakening inflationary pressures and leaving the economy more vulnerable to a tightening in monetary policy. Members of the MPC are clear that acting too slowly is more costly than acting too quickly, seemingly edging us closer to higher rates later in the year.

“The new government should likewise take note of the UK’s economic vulnerability and act with care over the summer. We have had two years now of speculation regarding how public sector funding gaps will be plugged, which in past years have dragged on confidence and growth. It is crucial to bring that speculation to an end. Meanwhile, the need to better protect the UK from the impact of energy shocks grows ever more acute. This will require a more pragmatic approach to net zero transition, which recognises the ongoing need for fossil fuels alongside the right incentives to speed electrification and manage transition costs.”

Suren Thiru, ICAEW Chief Economist, said “Keeping interest rates on hold is a predictably pragmatic response to the conflicting realities of softer-than-expected inflation on the one hand and renewed US-Iran hostilities threatening a fresh wave of price rises on the other.

“The tighter vote split in favour of this outcome confirms a further hawkish shift within the committee, with inflation worries outweighing concerns over the economy, keeping a September rate rise on the table.

“Interest rates remain on a knife-edge. Policy could stay unchanged for the rest of the year, with rate-setters relying on tough talk rather than higher rates to contain inflation. But the longer the Iran conflict persists, the greater the risk that the committee’s patience finally snaps.

“Rate-setters may also want to assess the inflationary impact of any upcoming policy announcements from the new Prime Minister before deciding on the next move on interest rates, particularly amid ongoing financial market volatility.”

Phil Hughes, Deputy Managing Director, Paragon SME Lending, said “Despite another period of turbulence with geopolitical conflict in the Middle East and a changing Government on home soil, today’s figures from the ONS show that British businesses have continued to demonstrate resilience. In a challenging market, business creations increased by 2.2% year-on-year and, importantly, outpaced closures during the quarter. There are warning signs, however, with the rise in business closures across most sectors serving as a reminder that many SMEs face significant ongoing pressures.

“Comparing across sectors, it’s encouraging to see strong growth in new businesses across construction and professional services, indicating growing confidence in industries critical to investment, development and growth.

“SMEs are responsible for a significant share of economic activity, jobs and innovation, so supporting their growth should be central to the Government’s economic strategy. Burnham’s Government has an opportunity to strengthen business confidence by reforming the tax burden, backing skills development and supporting career pathways, and providing the stability which gives growing businesses confidence to invest. The talent and ambition is there and with the right operating conditions, SMEs can play a major role in helping Government achieve its mission to deliver growth in every postcode.”

Tamsin Powell, Consumer Finance Expert at Creditspring.  said “The Bank of England has decided to hold interest rates at 3.75% today, but for millions of households already stretched, the base rate is only one part of the picture. With markets now pricing in two rate rises before the end of the year, the cost of borrowing could get more expensive, and paired with other rising costs that could be devastating for struggling families.

“The reality is that most people are not budgeting with comfortable margins. They are already absorbing higher rents, higher grocery bills and higher fuel costs. When you are running that tight, even a modest rise in a loan repayment or an unexpected bill can tip a monthly budget from manageable to unmanageable. A hold in the base rate does not change that.

“A hold does buy households some breathing space, so this is an opportunity to plan ahead rather than postpone decisions until pressure builds. Reviewing upcoming expenses, checking what repayments are due and thinking ahead can make a real difference. The Autumn Budget will also help shape the Bank’s direction of travel in the months ahead, so understanding your position early will be key to staying in control.

“For anyone considering borrowing, clarity and affordability should come first. People need to know exactly what credit will cost, what they will repay and whether it fits their budget before they commit. Transparent information is not a nice-to-have when money is tight; it is what helps people make decisions with confidence.”

John Phillips, CEO of Just Mortgages and Spicerhaart said “The decision to leave the base rate unchanged was largely priced in, as better-than-expected inflation data helped negate the need for the central bank to pull the trigger on any rate increase. For once, I think we’re all grateful for the bank’s patient, cautious approach as it monitors the impact of the Middle East conflict – which by all accounts, the UK has managed to weather pretty well so far. Even as oil prices have risen once again following the collapse of peace talks.

“How long they will be able to hold off any increase still remains uncertain, with some predictions of one or more by the end of the year. The message to clients to act sooner rather than later, I think is a shrewd one, while also being aware of the reality that lenders do need to lend as they have one eye on their end of year lending targets. Ultimately, successful mortgage decisions have never been about perfectly timing the market. They’re about balancing affordability, future plans and product suitability against the information available today. That remains the strongest advice brokers can offer, regardless of what happens to the base rate or in the wider economy.”