Interest rates cut to 4.5% – business industry reaction

The Bank of England’s rate-setting body voted to cut the base rate by 0.25% to 4.5%. The nine-strong Monetary Policy Committee voted by a majority of 7–2 to reduce Bank rate by 0.25%. But two members, Swati Dhingra and Catherine Mann, thought more help was needed and voted for a 0.5% cut.

Bank Governor Andrew Bailey said the Monetary Policy Committee is “monitoring the UK economy and global developments very closely and taking a gradual and careful approach to reducing rates further. The Bank has also halved its growth forecast, saying that it expects the economy to grow by 0.75% in 2025, with this down from a previous estimate of 1.5%. In its quarterly inflation report, the Bank said economic growth had been “broadly flat since March last year.

While the economy saw zero growth between July and September, the Bank expects a decline of 0.1% in Q4, having previously forecast growth of 0.3%. The Bank expects the economy to grow by 0.1% in Q1 2025. It had predicted growth of 0.3%. It also forecasts that inflation will rise to a peak of 3.7% in the third quarter of this year, up from a previous estimate of 2.8%.

Anna Leach, Chief Economist of the Institute of Directors, said “All members of the MPC voted for rates to be cut today, with the only difference of opinion being how much to cut by: 7 voted for a 25bp cut, with 2 voting for 50bp cut. However, today’s read-out presents a worrying outlook for the UK, with inflation now projected to reach 3.7% in Q3 this year, and the economy now likely to have shrunk at the end of last year. This is accompanied by the view that “a gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate”. All in all, with inflation up and growth down, stagflation risks remain on the table.

“The MPC is rightly focussed on driving out inflationary pressures in the economy, but the reality for businesses is that they’re facing double pressure on costs from higher taxes and restrictive interest rates. This amplifies the pressure on government to deliver growth. Whilst the government is rightly focussed on increasing investment to improve the UK’s potential growth, the reality is that decisions made last year have significantly undermined momentum and will affect levels of private investment for years to come. As well as progressing swiftly with plans to unblock private sector investment through regulation and planning reform, the government should urgently reconsider the additional burdens placed on businesses last year, particularly employment regulations and pernicious tax changes affecting family firms, farms and non-doms.”

George Lagarias, Chief Economist at Forvis Mazars said“Sluggish growth and more benign inflation are pushing Britain’s central bank towards the dovish path of the ECB rather than the hawkish path of the Fed. Markets are now expecting Mr Bailey to announce two more cuts until the end of the year. The move will not come without challenges. Being on the same rate path as your main trading partner (the EU) has some economic advantages. Conversely, however, allowing room for the Dollar to appreciate further against the Pound could risk some capital flight towards the US.”

Federation of Small Businesses (FSB) Chair Martin McTague said “The cut in the base rate needs to be passed on by lenders to borrowers as rapidly as possible, to give small firms a bit of breathing space, and to enable more of them to think about growth and future plans, rather than just survival.

“With inflation at a manageable level, elevated rates are a barrier holding back economic growth. The start of a sustained reduction trajectory will help. Market expectations of further rate cuts in the year will be welcomed by small businesses who will look forward to reduced borrowing costs and more finance options being available to them.

“Ensuring that small businesses have access to the funding they need to invest and grow is a vital component of a healthy economy. Lower rates will play a huge role in unlocking expansion among small businesses, and we also want the Government to ensure that personal guarantees to limited company directors are properly regulated, so that what should be a business loan does not end up as a personal liability.

“In addition, lower rates on mortgages and personal finance products will give small business owners some much-needed financial headroom, while giving a fillip to consumer confidence, which will benefit customer-facing sectors such as retail and hospitality.

“A financial landscape that encourages small firms to take a chance on a new piece of equipment, bigger premises, or a training course to expand their skills is one that will help to deliver the economic growth that we all want and need to see as soon as possible.”

Gary Wilkinson, CEO of Redwood Bank, a specialist business bank, said “The decision to drop the base rate is welcome news for property landlords and other business property owners, albeit the fall is not happening as quickly as was anticipated or hoped for by many in the property sector.

“Those property firms looking to buy or refinance properties to grow their portfolios or businesses looking to fund and acquire commercial premises could now benefit from lower interest rates, potentially reducing their interest costs and improving their leverage. Those with existing borrowing on variable rates will benefit from a fall in their interest payment.

“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.”

Mike Randall, CEO at Simply Asset Finance, said “Businesses up and down the country will be breathing a sigh of relief with rates ticking downward. Not only will it give some much needed breathing space for those squeezed by the NI rise; those eager to grow will find borrowing cheaper. Combined with the recent publishing of the Governments’ growth strategy, the outlook for 2025 is looking much more positive.

“But with Trump-led trade wars perhaps tempering the speed of future cuts, the Government cannot afford to take its eye off the ball when it comes to creating an environment that enables domestic growth to flourish.”

James Burgess, Head of Commercial at Atradius UK, said “Today’s interest rate cut to 4.5% brings much-needed relief for businesses and consumers, defying expectations that rates would remain high in line with the Budget. This move sets a positive economic tone for 2025.

“For businesses, the reduction fuels confidence, with potential benefits including increased spending, job creation, and greater access to more affordable borrowing, particularly in the mortgage market.

“However, while this is a win for the economy, global uncertainties and the fallout from Reeves’ controversial growth speech last month underscore the need for strategic financial planning. To remain resilient, businesses should focus on liquidity, diversify supply chains, and secure trade credit insurance to capitalise on emerging opportunities.”

Alan Davison, Chief Commercial Officer of Afin Bank, said “Today’s 25bps cut to the Base Rate is no surprise, as lenders had already started pricing it into their fixed products. But I wonder if the Bank of England’s Monetary Policy Committee would have preferred another a week or so to ponder its decision given the impending risk of global economic turmoil sparked by Donald Trump’s threatened trade tariffs.

“For the time being, lower mortgage rates will be welcomed by borrowers looking to buy or remortgage soon, particularly those hoping to beat the lowering of the stamp duty threshold on 1st April. Whether there are more base rate drops in the pipeline and a steady fall in rates, as some commentators predicted at the end of last year, remains to be seen. Inflation is stubbornly high, which could be impacted further if a Trump trade war triggers worldwide price rises while also hindering our own export trade. I think for the market and policymakers, the next month is going to be a bit of a nail-biter.”