Bank of England cuts interest rates for first time since March 2020: The small business reaction
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Posted: Thu 1st Aug 2024
The Bank of England has cut interest rates from 5.25% to 5%, the first reduction since the start of the pandemic in March 2020.
The Monetary Policy Committee voted 5-4 in favour of the cut. Rates rose from 0.1% in 2021 to a 16-year high of 5.25% in August 2023.
The cut follows a reduction in inflation, but Bank of England governor Andrew Bailey cautioned interest rates will likely fall slower than they were increased.
He said that policymakers "need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much, before adding: "ensuring low and stable inflation is the best thing we can do to support economic growth and the prosperity of the country."
Commenting on the interest rates reduction, chancellor Rachel Reeves said:
"While today's cut in interest rates will be welcome news, millions of families are still facing higher mortgage rates after the mini-budget.
"That is why this government is taking the difficult decisions now to fix the foundations of our economy after years of low growth, so we can rebuild Britain and make every part of our country better off."
The Conservatives' shadow chancellor Jeremy Hunt said:
"Today's cut will be welcome news for millions of homeowners and shows that Labour inherited a stronger economy which was on the right track.
"In government, we took difficult decisions that cut inflation from 11.1% to the Bank's target 2.0% paving the way for lower rates. Our concern is that further substantive cuts may now take longer because of inflation-busting public sector pay rises rushed through by the chancellor ahead of the summer."
Small business reaction to interest rates cut
Enterprise Nation founder Emma Jones said:
"While the reduction in inflation has been good news, today's drop in interest rates is the one small businesses have all been waiting for.
"While inflation was high, we know many small firms had to take on finance including repayment deals with high interest rates to cover costs. This drop today signals change - and that will hopefully begin to trickle down to ease those repayments, helping small firms have some breathing space to invest in their own business.
"The economic growth the government wants to see will be largely powered by small firms, so it is vital they are not held back by cost pressures and high interest rates."
Thomas Balogun, Enterprise Nation member and founder of Atlantic Edge Investments, said:
“As a property entrepreneur, the reduction in interest rates will primarily benefit my business through lower borrowing costs.
“This decrease alleviates increased costs by making loans, mortgages, and credit more affordable, encouraging spending on home improvement opportunities to enhance yield and margin, as well as further investment.
“In recent years, lenders have frequently offset lower interest rates by raising arrangement fees, sometimes up to 7% of the borrowing amount. This is considerably higher compared to the lower rates seen before the pandemic.”
Chris Yang, personal finance consultant and founder of Coins Value:
"This rate cut is a game-changer for small businesses. It's like a breath of fresh air in a stifling economic environment. Lower interest rates mean cheaper loans, fueling growth and innovation in the small business sector.
"Let me share a personal example. In 2020, when rates were slashed, I secured a low-interest loan to expand coin value. We used the funds to develop our AI-powered coin identification tool, which has since become a cornerstone of our business. This rate cut could offer similar opportunities to countless other small businesses.
"However, it's not all roses. While cheaper borrowing is great, this rate cut also signals economic uncertainty. As a business owner, I'm now reassessing our financial strategy. We're looking at ways to capitalize on lower borrowing costs while preparing for potential market volatility.
"Let's seize this opportunity for Enterprise Nation members and other small business owners, but do so cautiously. Consider refinancing existing debt, investing in growth areas of your business, or building up cash reserves. But always keep an eye on the broader economic picture.”
Karim Ullah, CEO and co-founder of Brohmon, said:
"We have a restaurant that's really struggled since we opened during the middle of the pandemic. We closed within 11 days of opening, due to the first national lockdown in 2020.
"We have made immense progress since, winning several awards and have launched our own craft beer and artisanal gin. We were hoping for a strong period of growth, but the cost of living crisis (perfect storm for hospitality) has made it very difficult to do that. We are hopeful we will see more people coming to our restaurant because of the cut in interest rates.
"We are now also hopeful people will spend more on our beer and gin, especially as gift items for Christmas."
Sophie O'Shea, founder of Wide Awake Club:
"Lower interest rates will help me massively as a small children's fashion brand. Not only will it encourage more spending from my customer base, but I am also more likely to take out a business loan to scale up my business as opposed to relying solely on the profit we are making."
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