Interest rates cut to 0.25%: What does it mean for businesses?

The Bank of England's decision will encourage more borrowing and less saving. Entrepreneurs share their views on whether they think it's good news

At 12pm today, the Bank of England confirmed the news that had been widely anticipated – interest rates have been cut.

Following a unanimous vote by the Monetary Policy Committee, interest rates will now be set at a record low of 0.25% and the Bank of England has also pledged a “package of measures designed to provide additional monetary stimulus”.

These measures include a £435bn asset purchase programme, a new £100bn programme designed to help banks pass on the base rate cut, and £10bn in electronic cash to be created to buy corporate bonds from firms.

Effectively the new interest rate, down from 0.5%, will see people encouraged to borrow more and save less but is this good or bad news for UK small businesses?

Here are some opinions from entrepreneurs and small business owners…

Easier to access finance

Howard Graham, CEO of Made Simple Group: 

“This is welcome news for small businesses and start-ups, who will benefit from cheaper borrowing – vital when you consider that sourcing finance is one of the first hurdles when setting up a new company. Small enterprises, especially those employing just nine people or less, are cornerstones of our economy […] yet barriers like funding can act as a deterrent for those just starting out.

“For these companies, the ability to borrow at a lower rate could make a huge difference to their prospects over the next few months. In turn, this could be a shot in the arm for the economy.”

Warnings of a recession

Angus Den, CEO of ArchOver:

“While this reduction may seem a good idea in some respects, the move to stimulate the market to borrow more and save less sends a strong message of ‘no confidence’. Any small and medium enterprise considering raising money is unlikely to be swayed by a cut of 0.25% when rates are already at historic lows.

“If anything, they will interpret the move as one that creates uncertainty and supports the view that the UK is about to talk itself into recession after the Brexit vote. A more positive message might have been achieved by putting interest rates up.”

Support for banks to charge negative interest rates

James Sherwin Smith, CEO of Growth Street: 

“The announced cut to interest rates will bring further misery to UK businesses. With business overdrafts down 50% in four years, many firms have resorted to holding deposits to survive expected dips in cash flow.

“Banks are already preparing to charge negative rates, so businesses may soon find they now have to pay banks to hold their money, which will mean firms suffer even further.”

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