Credit, Collections & Insolvency News
The Bank of England has held interest rates at 5% for a second month in a row.
Commenting on the news, Anna Leach, Chief Economist of the Institute of Directors, said “Today’s 8-1 vote by the MPC for no change in rates was widely expected by markets and analysts. The Bank has indicated a “gradual approach” to lowering rates as being appropriate. This is logical given that inflation will be sticky for the next few months, with the Ofgem price cap set to increase by 10% and domestic inflation measures still high.
“All else equal, we should see a rate cut in the November meeting, which follows shortly after what promises to be rather difficult October Budget. With public sector pay settlements judged to have a mildly inflationary impact, and the labour market remaining on the tight side, it’ll be interesting to see how the overall package from the Chancellor is judged by the Bank to influence the overall outlook for inflation and the pace of rate cuts.”
James Burgess, Head of Commercial and Insolvency expert at Atradius UK, said “After years of waiting, businesses and consumers across the UK finally got some relief last month when rates were cut to 5%—the first decrease since 2020. But that relief was short-lived with today’s announcement of rates holding steady at 5%.
“As businesses and consumers brace for impact, especially after the welcome dip in August, it’s now more important than ever for companies to safeguard their finances against an unpredictable economic climate. With both interest and inflation rates creeping back up, uncertainty is in the air across the UK.
“Despite concerns over wage growth and rising inflation, there’s still hope. Many are looking to the Bank’s Monetary Policy Committee’s (MPC) next announcement in November, which could be a game-changer as we head into the end of the year.
“Our own claims data tells a positive story, showing a 17% drop in late and failed payments from Q1 to Q2 2024. Sectors like agriculture, electronics, and paper are thriving, with significant declines in claims in July compared to June—results businesses will want to maintain as we move into 2025.
“For now, businesses are focused on navigating the quieter autumn period and preparing for the all-important festive season. The economy is on a knife’s edge, and while we hope for another rate cut, the current unpredictability means businesses must stay vigilant. This includes boosting liquidity, diversifying supply chains, and securing trade credit insurance to protect against the ripple effects of insolvency.”
David Bharier, Head of Research at the British Chambers of Commerce said “Today’s decision by the MPC to hold the interest rate at 5% is as expected and shows the Bank is taking a cautious approach to cutting. This follows the Federal Reserve’s bigger than expected 0.5pp cut yesterday, which appears to have boosted investor confidence.
“While inflation has been clearly easing over the last year, yesterday’s ONS data showed some persistent price pressures in core inflation and the services sector, in particular. Our own research has shown that inflation remains a top concern for businesses, but significantly down on the peaks we saw in 2022.
“Many SMEs are looking for a clear path on cutting the interest rate further. Borrowing costs have risen for many of them, particularly those left vulnerable by Covid and Brexit, and this has had a big negative impact on investment intentions. However, with potential further volatility in inflation, the path may be slow and steady. Our own forecast suggests another cut is likely by the end of this year.
“Last month’s rate cut gave businesses who are struggling to invest welcome breathing space. But businesses are now looking to next month’s Budget for further help. Firms understand the fiscal backdrop the Government is facing and the need to address public finances, but that must not be at the expense of investment and growth.”
Alpesh Paleja, Interim Deputy Chief Economist at the CBI said “The Monetary Policy Committee was widely expected to hold fire this month, after the first rate cut in four years in August. There remain very varied views among the MPC around the degree of inflation persistence, and over what horizon this will dissipate.
“Monetary policy will be walking a fine line for a little while yet: between balancing upside risks to inflation, but not being too tight, so as to choke off activity. Developments in fiscal policy in October’s Budget will also be a key consideration for growth prospects.
“We still anticipate another rate cut in November, and a few more next year, in line with the MPC moving at a slow but steady pace. On their own, lower interest rates will be a welcome respite to households and businesses.”
Redwood Bank’s CEO and co-founder Gary Wilkinson said “The decision to hold base rate this month is not unexpected news. Professional landlords and businesses with mortgages where mortgage finance forms a significant part of their costs had hoped rates would fall sooner and faster in 2024.
“Those businesses with cash to invest should regularly compare interest rates to ensure they receive a competitive interest rate. They should also consider if they want to lock in their interest rates now by using a fixed-rate term product, particularly if they think base rate will fall later in 2024 and into 2025. They should be mindful, however, that they won’t need access to funds during the fixed term.”