Interest rates remain at 4.25% – business industry reaction

The Bank of England Monetary Policy Committee (MPC) has voted to hold interest rates at 4.25%. The MPC voted 6 to 3 in favour of leaving rates unchanged, with 3 members preferring to cut rates to 4.0%.

Responding to the Bank of England’s Monetary Policy Committee’s vote to keep the base rate at 4.25%, Tina McKenzie, Policy Chair, Federation of Small Businesses (FSB) said “Today’s decision on the base rate was not unexpected, given recent inflation readings being higher than the Bank of England’s target.

“However, small firms will be hoping to see cuts later in the year, in order to improve their access to funding. Over four times as many small firms rated the availability of new credit as poor than rated it as good, according to FSB’s most recent Small Business Index.

“High interest rates also unfortunately translate to worse problems with late payment, as large corporates which are feeling pressure from their own leveraged positions use their suppliers as a source of, essentially, free credit.

“The forthcoming Industrial Strategy should follow on from the Government’s welcome plan to tackle late payment by banning large firms with poor payment practices from applying for grants.

“Meanwhile, the plans for audit committees and boards of large businesses to oversee and review payment practices, to improve transparency and accountability, cannot be brought in soon enough.

“Stamping out late payment will mean far fewer small firms having to apply for emergency loans to keep themselves afloat while waiting for invoices to be paid – something that causes even greater pain in a high interest rate environment.”

John Payne, Senior Economist at Dun & Bradstreet said “True to form, the Bank is maintaining its cautious stance, having avoided back-to-back cuts since it began easing rates last year, amid persistent inflation concerns.

 “Policymakers face a challenging economic environment with a sharp GDP contraction in April, even as inflation remained elevated, driven in part by rising fixed costs for essentials like electricity and water. Households likely face a rocky road ahead, with the unemployment rate rising due to greater costs for businesses to employ workers, particularly at the lower-income levels.

“International headwinds are also gathering. If the US presses on with higher tariffs, UK exports could take a hit, dampening growth and job creation. While the UK has secured some exemptions and more clarity is expected after 9 July, the Bank appears to be in ‘wait-and-see’ mode.

“Meanwhile, tensions in the Middle East pose a fresh inflation risk. Any disruption to supply chains or energy imports could reignite price pressures, echoing the 2022 – 2023 spike triggered by Russia’s invasion of Ukraine.

“Altogether, a volatile mix of trade and geopolitical developments have added a great deal of uncertainty for British exports and the cost of imported energy, adding complexity to the Bank of England’s path of interest rate cuts. In this climate, businesses must stay agile, monitoring developments closely and, where needed, adapting supply chains, sourcing strategies or target markets to manage risks linked to tariffs and shifting global demands.”

James Burgess, Head of Commercial and Insolvency expert at Atradius UK, said “While the decision to hold rates at 4.25% was widely expected, given above-target inflation at 3.4% and high wage growth, it creates a challenging environment for UK companies. High borrowing costs and lingering tariff uncertainty continue to hamper investment and growth, particularly for SMEs. Businesses are still navigating elevated operating costs and cautious consumer spending.

“To navigate the uncertainty ahead, businesses should take proactive steps to protect their operations. Strengthening cash flow, reviewing supply chain resilience, and considering trade credit insurance can provide greater stability and peace of mind during what remains a challenging period.”

Tom Worbey, Senior Lending Propositions Manager at Redwood Bank, said “The Bank of England’s decision to hold the base rate today reflects the complexity of the current economic landscape. While inflation has edged up recently – potentially due to one-off factors like higher employer costs from National Insurance changes – underlying indicators suggest demand remains weak and business confidence subdued.

Anna Leach, Chief Economist of the Institute of Directors, said “The MPC voted 6-3 to hold rates today as widely expected, with three members voting for a 25 basis points cut. While two-sided risks to inflation are still mentioned, the overall tone of the minutes suggests upside risks are becoming less of a concern. The minutes highlight the progress made over the past two years in bringing down inflation, but this time note a stabilisation of inflation expectations.

“Pay growth is now expected to show a “significant slowing” over the rest of the year, and beyond that which could be explained by economic fundamentals, with the labour market generally continuing to soften. And core inflation came in a little lower than the Bank expected. But overall, with the language of the MPC’s minutes sticking with a “gradual and careful”, 50 basis points of cuts this year seems the likely outturn for now.”