Interest rates finally cut to 5%

The Bank of England has lowered the cost of borrowing from a 16-year-high of 5.25%, cutting interest rates to 5%.

The Monetary Policy Committee (MPC) voted by a majority of 5–4 to reduce the base rate by 0.25 percentage points, to 5%, with four members voting to maintain the bank rate at 5.25%.

Optimism about a cut had been boosted by UK inflation holding steady at the 2% target rate for the second consecutive month, with two major banks – NatWest and Virgin Money – cutting their mortgage rates prior to the news.

However, doubts were raised about whether the MPC would act on lowering interest rates before September, with price rises in the services sector and Labour’s public-sector pay deal potentially blocking interest rate cuts.

Mike Randall, CEO at Simply Asset Finance, commented: “Cutting interest rates offers welcome relief and signals growing confidence in the economic outlook. And for SMEs it’s a moment they’ve collectively been waiting for since 2020 when the base rate first began its upward trajectory.

“As the seeds of recovery begin to take root, the urgency now lies in seizing the opportunity for growth and using the best tools at our economy’s disposal; the 5.6 million SMEs up and down the country. These are firms that account for 99.9% of UK business and 61% of total employment, and have time and time again proven their resilience in some of the most challenging years our economy has faced.

“Our new government previously made clear its intention to ‘pull up the shutters’ for Britain’s small businesses and entrepreneurs. We now must action this by creating policy that removes barriers, encourages investment and prioritises growth. With the date for the Autumn Budget now announced for October and the Chancellor looking to fill its £20bn black hole in public finances, there is no time to lose in creating a robust environment for our businesses and kickstarting growth for the years to come.”

“The potential for reduced borrowing costs should give businesses the confidence to kickstart plans that may have been put on the back burner in recent years. We continue to experience strong demand for funding from midsize businesses across various sectors, indicating prevalent optimism and a focus on growth among the UK’s SMEs. We expect a further boost with this news.

“As economic conditions improve, businesses with a growth mindset are increasingly looking to implement plans that may have been on hold this time last year, a positive sign for the UK economy moving forward.”

Commenting on the interest rate cut, Michael McGowan, Managing Director of Foreign Exchange, at Bibby Financial Services said: “After months of no change, today’s interest rate decision is a declaration of economic confidence from the Bank of England that will echo through international markets.

“Following the European Central Bank and the Bank of Canada, the Bank of England’s rate cut seeks to stimulate growth, not least among smaller businesses buoyed by the prospect of more affordable lending.

“Nonetheless, the path ahead remains uncertain. Against a backdrop of stubborn services inflation, and with energy price rises expected later in the year, future rate decisions remain unpredictable. For businesses trading internationally, currency volatility remains a thorn in the side and they will need to fortify their FX strategies to navigate the choppy waters ahead.”