The Bank of England has decided to keep interest rates steady at 5% for the second consecutive month, as anticipated by market analysts and observers. This decision was confirmed by an 8-1 vote from the Monetary Policy Committee (MPC).
Anna Leach, Chief Economist at the Institute of Directors, noted, “The MPC’s decision to maintain the current interest rate was widely expected. The Bank has indicated that a gradual approach to reducing rates is sensible, considering persistent inflationary pressures. With the Ofgem price cap set to rise by 10% and ongoing high domestic inflation, the Bank’s cautious stance is understandable.”
Leach anticipates a potential rate cut in November, which will follow a challenging October Budget. She highlighted that public sector pay increases could exert additional inflationary pressures and that the Chancellor’s fiscal measures will likely impact the Bank’s outlook on inflation and the timing of rate adjustments.
James Burgess, Head of Commercial and Insolvency at Atradius UK, expressed disappointment, saying, “After a promising rate cut last month, businesses and consumers had hoped for further relief. The decision to hold rates at 5% means that companies must remain vigilant in managing their finances amidst an unpredictable economic environment.”
Burgess noted a significant 17% reduction in late and failed payments from Q1 to Q2 2024, suggesting resilience in sectors like agriculture, electronics, and paper. However, he stressed the need for businesses to enhance liquidity, diversify supply chains, and secure trade credit insurance to navigate potential economic fluctuations.
David Bharier, Head of Research at the British Chambers of Commerce, commented on the MPC’s cautious approach. He said, “The decision to maintain the interest rate at 5% reflects a prudent stance, especially following the Federal Reserve’s unexpected 0.5 percentage point cut. Despite easing inflation, persistent pressures in core inflation and the services sector remain.”
Bharier pointed out that many SMEs are grappling with high borrowing costs, exacerbated by the impacts of Covid and Brexit. He emphasized that businesses are looking for clearer indications of future rate cuts and are hopeful that the upcoming Budget will address their needs for investment and growth.
Alpesh Paleja, Interim Deputy Chief Economist at the CBI, observed, “The MPC’s decision to hold rates steady was anticipated after August’s rate cut. The committee faces a delicate balancing act between managing inflation risks and avoiding overly restrictive policies that could stifle economic activity.”
Paleja expects another rate cut in November, with potentially more adjustments in the following year, as the MPC continues to navigate economic uncertainties with a cautious approach.
Gary Wilkinson, CEO and co-founder of Redwood Bank, remarked, “The decision to maintain the base rate was expected. Businesses, especially those with significant mortgage costs, had hoped for a more substantial rate reduction. For those with available cash, it’s prudent to compare interest rates regularly and consider fixed-rate options if a further decrease in base rates is anticipated later in 2024.”
Wilkinson advised businesses to evaluate their financing needs and weigh the benefits of locking in current rates against the potential for future decreases.
The Bank of England’s decision to hold interest rates at 5% underscores the ongoing economic challenges and the cautious stance adopted by policymakers in response to persistent inflationary pressures.
