Business leaders express disappointment at lack of movement on interest rates

Business leaders expressed disappointment at the Bank of England’s decision to hold interest rates at the current level.

There were hopes that a cut was on the way after the target of two per cent inflation was reached earlier in the week.

The Bank of England held interest rates at 5.2 per cent marking the seventh consecutive time the central bank has left the cost of borrowing unchanged.
Andrew Bailey, the Governor of the Bank of England, said: “It’s good news that inflation has returned to our two per cent target. We need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25 per cent for now.”
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, the online investment platform, said: “The Bank of England’s decision to hold the benchmark interest rate at 5.25% for the seventh consecutive time may have been anticipated by the financial markets but that won’t ease the disappointment for borrowers hoping for some respite from persistently high borrowing costs.

“What might also be worrying is the lack of movement on the rate-setting Monetary Policy Committee’s voting pattern with seven in favour of holding the status quo and two calling for a reduction – mirroring the decision at the meeting in May. It means hopes of a summer rate cut in August may also get dashed.

“The BoE’s decision also avoids a rate cut move becoming politicised in the run up to the General Election polling day.

“All eyes are now firmly pinned on August when the MPC makes its next interest rate decision to see if the central bank will finally deliver a cut. If it does, the next question will be whether there will only be one rate reduction this year or more – something that will be determined by what inflation does next as the headline rate is expected to edge up again later in the year as favourable base effects fall out of the equation.”

Neil Rudge, chief banking officer for Commercial at Shawbrook, said: “The decision by the MPC to hold rates was anticipated, as many expected the upcoming general election to deter any significant moves. Indeed, we might not see the cuts we’re hoping for until the Autumn. Despite this, SMEs are showing a growing demand for funding, indicating their continued optimism and focus on growth, which will be encouraging for any new government.”

Senior Economist at leading credit management services company, Intrum, Anna Zabrodzka-Averianov said: “Our data shows that the majority of companies (61%) still think interest rates will remain high into 2025, and this will likely be the case even if central banks begin cutting key policy rates this year. Following the unprecedently sharp tightening cycle, the easing process will likely be very gradual and as such rates will remain elevated relative to historical standards at least in the near term.

“At the same time, the impact of high interest rates is clear with half of business executives confirming the expectation of continued high borrowing costs makes them wary of investing to grow their organisations.

“Therefore, even though the mood music from central banks across Europe suggests rate cuts are on the horizon, businesses appear to be more jaded in their outlook. In the context of a torrid last few years characterised by economic instability, subdued growth and geopolitical uncertainty, this scepticism is completely understandable. The positive news is that we are starting to see some improvement in overall business and consumer sentiment but, inevitably, it will take time for this to translate into a noticeable change in the real economy.”