The Bank of England (BoE) has reduced its base rate from 5.00% to 4.75%, the second cut this year. This move follows a reduction in inflationary pressures over recent weeks, with the Consumer Prices Index (CPI) falling to 1.7% in September 2024, down from 2.2% in August.

The Monetary Policy Committee (MPC) voted to reduce the base rate, reflecting the continued progress in reducing inflation, whilst attempting to support growth in the economy.

Inflation outlook…

Despite the current low inflation rate, the BoE expects a slight increase over the next year:

– Inflation is projected to rise to around 2.75% before falling back to the 2% target.

– The recent Budget is expected to boost CPI inflation by just under 0.5 percentage points at its peak.

What impact might the cut in interest rates have on Businesses?

1. Borrowing Costs: Businesses with variable rate loans may see a decrease in interest payments.

2. Investment Opportunities: Lower rates could make borrowing for investment more attractive.

3. Economic Stability: A more stable inflation rate may lead to increased economic certainty.

What might happen in the future?

In its quarterly report, the BoE has said it will be taking a cautious approach to future base rate changes, with no further cuts expected at the next meeting, on 19^th December 2024.

However, the Bank have said that ‘if things evolve as expected, it’s likely that interest rates will continue to fall gradually.’

What action might business owners want to take?

– Review current borrowing arrangements and the impact of the rate cut.

– Consider the timing of planned investments.

– Assess the potential impact on cash flow and financial planning, updating budgets and forecasts accordingly. 

If you’re unsure about how these changes might affect you or your business, please get in touch.