Finance · 4 August 2016

Small business receives boost from historic Bank of England interest rate cut

Bank of England
Small firms could benefit from cheaper borrowing costs after the Bank of England lowered interest rates to 0.25 per cent on 4 August.
Small businesses can expect cheaper short-term borrowing costs as the Bank of England cut the UK’s base interest rate to a new all-time low of 0.25 per cent.

In its first major Monetary Policy Committee (MPC) announcement since Britain voted for Brexit on 23 June, the country’s central bank has reduced the base rate for the first time in seven years, by a quarter of a per cent.

Designed to ward off another recession, the move is likely to give an initial leg up to small firms, making it more affordable to borrow from banks and financial institutions.

Britain’s smallest ventures, including micro businesses, self-employed and freelancers, may also welcome the boost to consumer spending and demand that a cut to interest rates will bring.

Small business owners have lacked confidence in what’s been a period of significant economic uncertainty both in the run up to the referendum and the subsequent fallout from the Brexit vote and it is hoped the Bank of England decision will give firms a lift.

Early reactions from the small business community have been positive. CEO at startup group Made Simple, Howard Graham, said: This is welcome news. Startups will benefit from cheaper borrowing vital when you consider that sourcing finance is one of the first hurdles when setting up a new company.

barriers to funding can act as a deterrent for those just starting out. The ability to borrow at a lower rate could make a huge difference to the prospects of startups over the next few months.

However, despite this anticipated boost, concerns have arisen about the risk of a further drop in the value of the pound and the long-term impact on prices and inflation. Medium-term forecasts indicate a slowing of the economy, warned FSB national chairman Mike Cherry.

He added: The Bank of England and the new prime minister should carefully assess the effects of today’s cut and do all in their power to boost economic confidence and growth.


 
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ABOUT THE EXPERT

Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.

Business Law & Compliance