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What the cut in interest rates mean to small businesses?

Posted 02 Sep 16

The Bank of England has recently changed its rates, however, rather than increasing them as many people had been expecting, interest rates have reached a record low at 0.25%. One of the major reasons for this change is June’s referendum to vote for Britain to leave the EU, which resulted in understandable loss of economic confidence.

The reduction of the rates is The Bank’s Monetary Policy Committees’ attempt to stimulate economic activity and provoke more businesses to make investments. Furthermore, MPC members have created a new stimulus package in order to encourage more commercial and consumer lending. In this article we will take a look at how new interest rates might influence your small business.

Borrowing money from bank

One of the ways in which many small businesses fund their new projects or boost their finances is by taking bank loans. In theory, a new lower base rate and more quantitative easing should encourage banks to lend, which for small businesses means cheaper loans and overdrafts. However, we still do not know how this process will look in practise. In the past, when similar measures were used to jump out of the financial crisis, banks were often still reluctant to lend due to the uncertain market conditions.

Fortunately, there are other ways in which you can obtain a loan to develop your business. At Tawanda Accountants we understand the struggle young business owners experience when starting their first company and we want to make it as easy and stressless for them to develop their dream company. We connect our clients with trustworthy and affordable lenders who perfectly suit their needs. If you want to find out more about our easy, quick and affordable loans, contact our experts today.

Inflation and the pound

The Bank of England said that it is expecting prices to rise in the coming year as a result of weaker pound. The consumer price index (CPI) is expected to exceed its 2% target in 2018 as importing goods from other countries will become more expensive.

The fall of sterling is the result of declining economic confidence in the UK. Lower interest rates means that there is less demand for the pound as returns are less than on other currencies.

Savings and mortgages

Unfortunately, lower interest rates can strike savers, who have faced very low returns in the past decade. Rates on ISAs and deposit accounts are predicted to fall even further. There is a chance of mortgage rates to fall to some extend, but with saving rates, they are already very low in the context of the history of British economics, so the reductions scope is limited.