Yesterday the Bank of England’s Monetary Policy Committee decided, in a split decision, to reduce the bank rate to the lowest level for two years.
The decision was driven by a feeling that economic slowdown is currently a greater threat than inflation.
Business leaders have been giving their reaction.
Boost for deals market
Hamish Martin, partner at LAVA Advisory Partners, said: “The decision is a welcome step forward in this cycle of cautious easing, and might spell the start of open season for dealmakers after a lengthy period of elevated borrowing costs.
“Lower financing rates are likely to reanimate both private equity and corporate acquirers across a broad range of sectors, which is especially good news for rate-sensitive industries like real estate, consumer, and industrials.
“While inflation is still above the 2 per cent target and growth is still sluggish, Thursday’s move is a starting pistol that should help revive deal pipelines that have stalled due to the cost of capital.
“With August traditionally quiet, I think we’ll see the real benefits come September, when holidays are over and everyone’s back to work and pushing for a strong end to the year.”
Bad news for savers
Emma Sterland, chief financial planning officer at wealth management firm Evelyn Partners, said: “This probably signals the end of the road for many savings accounts that currently beat inflation, running at 3.6 per cent in June.
“We can expect to see savings rates reduced in the coming days and weeks, leaving returns on even the best accounts only marginally positive in real terms – especially after tax.
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“That can leave families who want to hold cash in a real quandary.
“While everyone should have a cash buffer in a deposit account, some individuals will find themselves wanting to hold more significant cash savings for a period of time for a variety of reasons.”
Boost for SMEs
Kai Hunter, non-executive director at SME lender Love Finance, said: “The Bank of England cutting rates to 4 per cent is a real boost for UK SMEs.
“After a tough couple of years with rising costs and cautious spending, this gives businesses some much-needed breathing space, a chance to plan, invest, and move forward with a bit more confidence.
“It’s good to see the momentum finally starting to turn.”
Consumers turn to credit
Madhu Kejriwal, CEO of TransUnion UK & Europe, said: “The Bank of England’s decision to cut interest rates is a welcome signal for UK consumer resilience.
“Although borrowing costs have risen sharply over the past two years, overall consumer credit volumes remain well below pre-pandemic levels, suggesting that households have been cautious in taking on new debt.
“We’re seeing more people use credit to help manage everyday spending. Over one in seven (15 per cent) use buy-now-pay-later (BNPL) for small, routine purchases, including groceries and takeaways. While this can offer short-term flexibility, it may also reflect limited expendable income in some households.”
Tax rise fears
Luther Yeates, head of mortgages at Orton Financial, said: “While it’s encouraging to see the Bank of England act to stimulate growth, rising taxes on individuals and businesses continue to drag on the economy.
“It is great to see the bank making moves to stimulate the economy and support growth. But there are still significant downward pressures due to increases in taxation on individuals and businesses. We are unlikely to see any meaningful benefit from the reduction in base rate, and it will instead slow the decline and move towards recession.”