Member Article

London businesses react to the Bank of England’s historic rate cut

Following today’s widely-expected announcement that the Bank of England’s Monetary Policy Committee (MPC) had voted in favour of cutting interest rates to an historic low of 0.25%, we canvassed some snap reaction to the move from London businesses.

James Sherwin Smith, Chief Executive Officer of Growth Street

“The announced cut to interest rates will bring further misery to UK businesses. With business overdrafts down 50% in 4 years, many firms have resorted to holding deposits to survive expected dips in cash flow.

“The SME Finance Monitor reported at the end of 2015 that 24% of businesses hold a credit balance of £10,000 or more, up from 16% in 2012. This in itself is concerning, as businesses are not reinvesting their profits, reducing growth and levels of employment.

“Banks are already preparing to charge negative rates, so businesses may soon find they now have to pay banks to hold their money, which will mean firms suffer even further. Businesses must look to the alternative finance sector, not only as a way to borrow on better terms, but also to earn a superior return on their excess cash.”

Ian Thomas, Co-Founder and Director, LendInvest

“The fallout from Brexit could spell good news for professional and experienced property investors. If houses prices do cool as predicted, investing in property will become even more enticing, particularly if today’s rate cut translates into cheaper financing.

“Added to this, a protracted house price drop will likely deter some people from buying homes. But they will still need somewhere to live, providing a further boost to the landlord market.”

Howard Graham, Chief Executive Officer at Made Simple Group

“This is welcome news for small businesses and start-ups, who will benefit from cheaper borrowing – vital when you consider that sourcing finance is one of the first hurdles when setting up a new company.

“Small enterprises, especially those employing just nine people or less, are cornerstones of our economy, accounting for 95% of total UK business and a third of the sector’s employment, yet barriers like funding can act as a deterrent for those just starting out.

“For these companies, the ability to borrow at a lower rate could make a huge difference to their prospects over the next few months. In turn, this could be a shot in the arm for the economy.”

Robert Gordon, Chief Executive Officer of Hitachi Capital

“A move towards negative interest rates is clearly not helpful for the economy. The incremental reduction of 0.25% is also unlikely to make a significant difference in stimulating growth.

“We will look to the government and businesses to provide strong leadership and investment to restore stability and a level of certainty in the UK economy.”

Alex Brandreth, Deputy Chief Information Officer at Brown Shipley

“The shockwaves from the referendum result on the 23rd June are clear for all to see; recent Manufacturing and Service survey data have fallen significantly and the Bank of England have taken the decision to act in support of the economy via both an 0.25% interest rate cut and further quantitative easing.

“It is unclear how further QE will stimulate the economy, interest rates have been at ultra-low levels since March 2009 and yet the UK economic recovery has been weak. Cutting interest rates is designed to make financing more affordable and encourage investors to borrow.

“The only problem is that we live in a highly indebted society and investors are unlikely to borrow should they have concerns about the future direction of the economy. Which begs the question; is monetary policy broken?”

Andrew Burrell, Head of Forecasting at JLL

“The Bank’s interest rate cut was widely expected after July’s disappointment. Other measures, including £70bn of new asset purchases, were more of a surprise, but still in line with previous hints by Governor Carney. It will be some time before the economic impact of these measures can be judged, but the announcement will help reassure investors and occupiers at a time of intense uncertainty.”

Miles Gibson, Head of UK Research, CBRE

“Following the referendum result, the Bank of England made reassuring noises to the market and opted to wait another month to see if conditions improved. The MPC felt it had to take action with today’s cut representing the strongest monetary policy intervention we have seen to date.

“This week’s weak PMI numbers across all sectors were likely the final nails in the coffin for any members who had hoped to keep the rate at 0.5%.

“From a commercial property perspective, this base rate cut will not have any big impact on pricing, which is driven by long term rates, although pricing might be boosted by a confidence effect from this cut.

“With sterling priced assets still looking attractive to overseas investors, whose cost of capital is not driven by UK debt markets, London and the UK most definitely remain a strong investment opportunity.”