The Bank of England has voted to leave interest rates on hold for the second time in a row.
The Bank’s monetary policy committee has left them unchanged at 5.25%, a 15-year high, following 14 increases in borrowing costs from December 2021 to August this year.
Governor Andrew Bailey said it was “much too early” to think about cuts to and that they would remain where they are “for an extended period of time to get inflation back to target”.
A steadying of interest rates will undoubtably relieve some pressure for small businesses, according to Mike Randall, CEO of Simply Asset Finance. But, he added: “There are still fundamental problems to be solved if they are to thrive in the coming year.
Recently announced government commitments, such as the Prompt Payment & Cash Flow Review, are certainly a step in the right direction, but the job is far from complete
“These are firms that have remained unwaveringly resilient in the past few years, facing stubborn inflation, some of the highest interest rates on record, persistently high energy costs and ongoing supply chain issues. Yet support available to small firms – which represent 99% of UK business – has still remained limited, and in some cases has been cut back in recent months.
“Recently announced government commitments, such as the Prompt Payment & Cash Flow Review, are certainly a step in the right direction, but the job is far from complete and all eyes will be on the chancellor’s Autumn statement next month.”
Michael McGowan, Managing Director, Foreign Exchange, Bibby Financial Services, said that following September’s pause in a “brutally long run of rate rises, it’s come as no surprise that the Bank of England held the interest rate steady– especially after this week’s fall in food price inflation. Businesses may dare to hope the summit has been reached and hikes are at an end.
“Yet a rate of 5.25 per cent is no walk in the park for businesses – and SMEs, who rely most on external finance, will be feeling the pinch hardest. What’s more, for the 53% of UK SMEs that import and/or export across borders, the rate pause has already sent the pound tumbling against the dollar and the euro, which represents a potential a blow to profitability.”
Neil Rudge, Head of Enterprise at Shawbrook, said: “This will reassure SMEs who may be starting to feel more optimistic that the peak of the interest rate cycle has now been reached. The halting of rate hikes coupled with steadying inflation allows small businesses the room they need to lay out their plans for 2024 and gives them the confidence necessary to commit to larger investments.
The current economic climate is presenting major challenges for companies with limited cash reserves
“Whilst the news may be trending in the right direction, the business climate is still challenging for SMEs with figures this week suggesting the number of companies going bust this year is on track to be the highest since the depths of the financial crisis in 2009.
“Our own research has revealed that one in ten SMEs that have struggled to access funding eventually folded. While mainstream, traditional finance providers often don’t offer the expertise or appetite to support these businesses, there are a plethora of specialist lenders who can help plug the funding gap and prevent these insolvencies.”
Claire Trachet, CEO of business advisory, Trachet, felt that the announcement may bring a degree of calm to what has been a volatile economic period for the UK’s investment ecosystem.
“The current economic climate is presenting major challenges for companies with limited cash reserves. When you combine the current rates with an IPO market that shows no signs of revival, scaling businesses – predominantly in tech – are finding it increasingly difficult to secure funding.
“This is a significant concern for even healthy privately-owned companies, as declining shares of similar publicly traded firms can lead to a decrease in their value. We know companies will have to make difficult decisions and give up a larger portion of their equity in order to raise the same amount of cash and I expect this to result in a growing number of down rounds in the coming year.”
Rate stall – so what comes next?