Interest rate falls to 4.25% – business industry reaction

The Bank of England has cut interest rates from 4.5% to 4.25%.

Responding to the announcement, Suren Thiru, ICAEW Economics Director said “This cut in interest rates is a timely shot in the arm for those businesses struggling to adjust to last month’s substantial spike in business costs and households contending with burdensome mortgage costs.

“While this reduction confirms that UK interest rates are trending downwards, it won’t materially reverse the financial squeeze or slide in sentiment among households and firms, given that many other costs are rising, and global headwinds are still elevated.

“The mixed vote split in favour of relaxing policy suggests that despite the bank forecasting slightly stronger growth, concerns among policymakers over UK’s economic resilience remain prevalent, leaving the door ajar for a June rate cut.

“With inflation expected to be slightly more subdued and concerns over turbulence in the global economy likely to persist, even with a US-UK deal on trade, the case for accelerating the pace of interest rate cuts may still increase.”

Neil Rudge, Chief Banking Officer for Commercial at Shawbrook said “SMEs will breathe a sigh of relief at today’s decision to cut the base rate after grappling
with numerous challenges both at home and abroad during April. The dueling factors of the increase to employer National insurance contributions and the wider turmoil caused by the proposed imposition of tariffs has created significant uncertainty, particularly for SMEs who export internationally.

Despite the looming uncertainty, falling inflation and now, a reduction to the interest rate is quietly good news for the UK, and should help to spark further growth moving forward. With experts predicting several more rate cuts this year, SMEs should begin to see the cost of borrowing come down further at a time where pressures are mounting. Our latest research found that 49% of SMEs labelled cash flow as an issue, if this is the case for your business, consider speaking to a specialist lender who can help find a tailored solution to unlock capital.”

Mike Randall, CEO of Simply Asset Finance, said “This month’s rate cut will ease some pressure for businesses under strain, especially following recent National Insurance changes, and provides hope for a more stable environment that can foster long-term growth and investment.

“However, the truth is that it will do little to aid the long-standing challenge of securing affordable finance. What is needed is for the government to switch from listening mode into the execution phase, with SMEs needing tangible solutions to be delivered. As the backbone of our economy, SMEs deserve a clear and consistent policy environment – one that gives them access to capital, regulatory certainty, and the long-term confidence they need to thrive.”

James Burgess, Head of Commercial and insolvency expert at Atradius UK, said “Today’s interest rate cut to 4.25% will come as a welcome relief to businesses and households across the UK. After months of subdued economic forecasts and ongoing geopolitical uncertainty, this move signals a cautious but positive shift in the economic outlook.

“With inflation easing to 2.6% last month, this rate cut should help restore confidence, encouraging spending and investment while supporting the government’s strategy for steady, sustainable growth.

“That said, businesses should stay focused on liquidity, reinforce supply chains, and protect cash flow through trade credit insurance to remain resilient and ready to seize new opportunities.”

Theo Chatha, Chief Financial Officer, Bibby Financial Services said “Today’s rate cut from the Bank of England represents a potential green light for SME investment, as over six in 10 (62%) SMEs say they will feel more confident investing if rates fall. But in today’s uncertain climate, a cut no longer holds the promise it once did.

“On paper, lower rates should be a boost for SMEs and the economy, easing borrowing costs and encouraging business investment. But relief from a cut could be short-lived, as the Bank may need to raise rates again later in the year to curb inflationary pressure due to tariffs friction. This threatens to dampen SMEs’ ambition – meaning investment plans are delayed further, but SMEs can’t afford a ‘wait and see’ approach to decision making. Against economic uncertainty, businesses that continue to invest and plan for every scenario will stay ahead of the competition.”

George Lagarias, Chief Economist at Forvis Mazars said “Growth” is the word. The rate cut is no surprise, nor should be the ones that will likely follow. When growth is sluggish, and expected to slow down even further, inflation concerns tend to subside. The Fed and the BoE are not in the same position. The US is likely to face steeper inflation, against a backdrop of stronger relative growth. Maintaining rates there is appropriate. While the UK might face a period of slow growth and above average inflation, stagflationary episodes don’t tend to last, which is something Andrew Bailey and Co know all too well.”

Anna Leach, Chief Economist of the Institute of Directors, said “The MPC voted 5-4 to cut rates today, in a surprisingly close vote by the MPC. Two members voted for a larger 50 basis point cut, but two voted to hold rates. It is clear from the minutes that the MPC are caught between concern over higher inflation becoming embedded in expectations and downside risks to growth from global developments.

“Regarding the impact of tariffs, as would be expected, the Bank judge that developments to-date push down on both the growth and inflation forecast in the UK via a variety of channels, including uncertainty and lower global export prices. Having halved its UK growth forecast for 2025 in February to 1%, May’s 2025 forecast is ¾%, with future years also downgraded. Meanwhile, the Bank’s forecasts incorporate lower expected prices for oil and gas, and a higher sterling exchange rate, which all feed through directly to lower price pressures.

“While the Bank takes pains to emphasise that interest rates are not on a pre-set path, their central forecast has a further 50 basis points of cuts this year and a lower profile for inflation. Today’s split vote underlines the degree of uncertainty facing policymakers and re-emphasises the importance for the UK of reinforcing and amplifying its global relationships.”

Julian Jessop, Economics Fellow at the free market think tank the Institute of Economic Affairs, said “The Monetary Policy Committee’s majority decision to cut rates by another quarter point today was widely expected and fully justified by the downside risks to inflation and growth. The only real surprise was the split, with two members voting for a half point cut and two for no change.

“The three-way split on the MPC sends mixed signals about the future path of interest rates and may disappoint those looking for more clarity. In part this reflects the variable quality of the official statistics, notably on the state of the labour market.

“Nonetheless, the diversity of views is a fair reflection of the heightened economic uncertainty, both at home and abroad. If anything, the lack of groupthink is something to cheer. It would be more worrying if nine rate-setters all came to exactly the same conclusion despite the many unknowns, including the fallout from a global trade war.

“It is also good to see a whole section of the Monetary Policy Report devoted to developments in broad money. This included an acknowledgement that these developments might be signalling downside risks to activity and inflation, albeit with ‘significant uncertainties’.

“Many commentators, including members of the Shadow MPC which meets at the IEA, have been arguing for some time that the Bank has not been paying enough attention to monetary aggregates, so this is another welcome sign that the reral MPC is now taking account of a wider range of perspectives.”