Interest rates cut by 0.25% – business industry reaction

Bank of England’s Monetary Policy Committee’s has voted to cut the base rate by 0.25% to 4.75%.

MPC voted 8-1 to cut rates, with the dissenter preferring to leave cuts unchanged at 5%. Inflation is expected to increase to around 2.5% by the end of the year, from 1.7% in September.

Federation of Small Businesses (FSB) Chair Martin McTague said “The fall in the base rate will slightly ease the pressures small businesses face on their margins, and will bring a bit of cheer in the run-up to the festive season.

“Success rates for small firms’ finance applications are still notably lower than they were on average before the pandemic, indicating that many small businesses looking to grow and invest are being held back by the borrowing environment being less welcoming than previously.

“Interest rates coming down to more reasonable levels should help unlock new demand from small firms for finance, and it’s important that when they apply for funding to grow, they are not put off by blanket demands for personal guarantees from lenders. Personal guarantees turn what should be a business loan into a personal finance product, but without the consumer lending protections which cover other forms of individual borrowing – a situation we think should be looked at by regulators, in order to protect small businesses.

“With a lot of swirling geopolitical uncertainty, small businesses in the UK will at least be able to bank on a slightly improved situation if they are looking to borrow, and slightly less financial pressure from existing loans on floating rates. The rate cut must swiftly be passed on by lenders, and the hope from small firms is that it will be followed by other rate reductions in months to come, enabling more small firms to reach their full potential and driving the growth that is needed to get the economy humming.”

Michael McGowan, Managing Director, Foreign Exchange, Bibby Financial Services said “While the recent UK Budget may have rattled businesses, today’s interest rate cut could be a welcome fillip for small businesses looking to invest and grow.

However, muted expectations of further UK rate cuts into next year, a new US administration, and continuing geopolitical turmoil make for a still uncertain economic outlook. That means SMEs would be wise to plan for a variety of outcomes – continuing to be ambitious, but also ensuring their plans are based on prudent cost and cashflow management. And businesses trading internationally should ensure they protect themselves against currency risk with coherent FX strategies.”

Commenting on the decision of the Monetary Policy Committee of the Bank of England to cut interest rates to 4.75%, Anna Leach, Chief Economist of the Institute of Directors, said:

“Today’s 8-1 vote by the MPC to cut interest rates was as expected by markets and analysts, despite the bigger-than-expected fiscal loosening announced at the Budget. The Bank is in agreement with the OBR that Budget measures will lift inflation by just under 0.5% points and has otherwise not changed its forward guidance on interest rates. This may imply a view that inflation having been lower than expected in recent months is cancelled out by the inflationary impact of the Budget, alongside lingering concerns about inflation persistence.

“The Bank notes some uncertainty regarding the likely path for inflation and interest rates following the Budget. But the market reaction so far, as well as a higher pathway for inflation, imply tighter credit conditions for businesses and households. On balance, we look set for fewer interest rate cuts than might otherwise have been the case.”

Redwood Bank’s CEO and co-founder Gary Wilkinson said “SMEs looking for funding to grow their businesses, or with existing borrowing on variable rates, should find the base rate cut beneficial, with lower interest costs. Professional landlords borrowing to refinance existing properties and release equity to expand their portfolio could also see their leverage improve thanks to lower rates.

“However, residential landlords will be carefully evaluating this option following the Budget announcement to increase stamp duty for second homes. While this decision is not likely to be welcomed by landlords, it does end speculation about what was to come and brings certainty to the sector. The buy-to-let market has weathered previous regulatory and economic headwinds and with lenders, brokers and landlords working together it will do so again.

“Businesses with surplus funds held in savings accounts should review their interest rates to make sure they remain happy with the returns on these accounts.”