Interest rates cut: reaction » SMEInsider

Interest rates cut: reaction

The Bank of England’s decision to cut interest rates by .25 percentage points has received a cautious welcome from small business groups. The CBI said the decision, couple with an increase in the quantitative easing available, “should be a shot-in-the-arm for business and consumer confidence, lowering borrowing costs and keeping liquidity flowing through the economy.”

“The bank’s action will help restore confidence in the UK economy and what’s now most important to businesses is that the Government develops a clear plan and timetable for EU negotiations,” said CBI chief economist Rain Newton-Smith.


‘Important to press ahead with policy priorities’

But she went on to say that the longer term economic challenges facing the UK economy cannot be ignored. “At the same time, it must press ahead with domestic policy priorities, especially infrastructure decisions, which will allow firms to get on with serving their customers and investing for the future”.

Those concerns were echoed by FSB national chairman Mike Cherry, who said his members “do have concerns about the longer term economic outlook. There is a real risk that sterling will depreciate even further, which could benefit the UK’s visitor economy and small exporters, but could also affect prices, inflation and investment”.

“Medium-term forecasts indicate a slowing of the economy. We urge the Bank of England and the new Prime Minister to carefully assess the effects of today’s cut and do all in their power to boost economic confidence and growth.”


‘Lower rates mean cheaper borrowing costs’

Cherry hopes the cut will deliver short term benefits: “Lower rates should lead to cheaper borrowing costs, making finance more affordable and helping to support business investment. Small firms will also welcome the boost to household spending power and consumer demand.

For its part, the British Chambers of Commerce said the rate cut was a reflection of the continued uncertainty surrounding the UK economy. “Lower interest rates may give a helpful boost to market confidence, but have little long-term effect on businesses when rates are already so low,” said acting BCC DG Dr Adam Marshall. “What businesses want is low, stable interest rates for the foreseeable future, which will enable them to make their own growth and expansion plans with confidence.

  • Ian Couch

    The government need to take a leaf out of the BOE handbook who in this case have reacted quickly and decisively to send a clear message to the markets. The time for talking is over we need some action and some positive news and a couple of major infrastructure project would certainly help

  • paul jennings

    Sadly I do not think a quarter of a percent will dramatically change SME borrowing plans. I find it difficult to grasp why in the past banks typically charged 4% above base when the interset rates were as high as 9% to 11% back in the 80’s and 90’s but are now charging 8% above base with secured business loans.