With news that Britain’s economy is on course to shrink by 0.4% in the next quarter and that its services and manufacturing sectors saw a decline in activity in July, the pressure is on the Bank of England to act. In light of this, it is widely expected to cut interest rates to 0.25% tomorrow. which will mark first time the interest rate has changed since it was set at 0.5% in March 2009.
If the bank goes ahead with the cut as expected, the hope is that lowering interest rates will give the economy a boost, get businesses investing and act as a signal to the markets that it’s prepared to take action to stimulate the post-Brexit economy. So will it have the desired impact? The reaction from many SMEs ranges from cautious optimism to a “knuckle down and get on with it” approach.
Richard Selby, director of Pro Steel Engineering, the steelwork construction project management firm, would welcome a cut to interest rates given the industry’s challenges. “The construction industry traditionally thrives during periods of low interest rates; there is already a high demand for both commercial and private property and this will only increase because of the growing number of appealing mortgages thanks to the low interest rate,” he said. “The cut in interest rates will help the sector’s activity, which last month recorded its fastest fall since June 2009.”
And Ross Beagrie, managing director of GoNutrition, the sports nutrition company, said “interest rate cuts are always welcome to a consumer-facing business like ours.”
But not everyone is convinced an interest rate cut is what’s needed most. Andrew Sentance, senior economic adviser at PwC, told The Yorkshire Post: “It is hard to see how a further cut in interest rates will help in this environment, except to push down the value of the pound still further – which would add to business costs and raise inflation.”
And Tom Jeffrey, head of e-commerce at Jules B, the fashion company, has his focus on more immediate concerns. “The effect of Brexit is our primary focus at the moment as we have been heavily affected by the exchange rate between the euro and the pound,” he said. “It would be good to see the government backing banks to enable easier financing if it is required.” He’s not too concerned about a reduction of interest rates yet – unless the cut has a further negative impact on the value of the pound.
Paul Gardner, sales and marketing director at Prescott Jones Insurance Solutions, isn’t jumping to any conclusions yet. Speaking to Elite Business, he said that “with interest rates so low already it is difficult to see what effect the cut will have.” He’s not convinced that it will be enough to encourage business to keep investing or result in the housing market seeing lower mortgage rates.
Evidently, then the impact of a lower interest rate isn’t clear-cut quite yet. And as with the impact of Brexit and the falling value of the pound, there will be winners and losers.