For the first time since 2009, the Bank of England made changes to the UKs interest rates. After a united vote by the Monetary Policy Committee interest rates within the UK will now be set to a record low of 0.25% a difference of 0.5%.
The Bank of England has also vowed a “package of measures designed to provide additional monetary stimulus.”
The measures involve;
- A £43 billion asset purchase programme
- A £100 billion system created to assist banks to pass with the new rate cuts
- £10 billion worth of ‘electric cash’ to purchase bonds from companies
With the new interest rate, will the people of the UK be inspired to borrow more and save less? And will this be a negative or positive impact on SMEs?
A lower cost of lending
A key point for businesses regarding the cut in interest is that business borrowing will now be ‘cheaper’ and for the Bank of England, this was one of their focal points as cheaper borrowing means a rise in investment and hiring.
However, there have been a couple of hitches to the ‘transmission mechanism’ a first since the financial crisis. One hitch includes the bank’s hesitance when it comes to reducing the overall price of lending to businesses. The second hitch is the delay on businesses applying to borrow. So for businesses who are looking and applying for funds, banks aren’t necessarily going to respond with moral and willingness. But, there is a separate scheme that has been designed to encourage lending which is called the Funding for Lending Scheme.
Head of Businesscomparison.com, Philip Brennan comments;
“The new interest rate has brought in a mixture of opinions; one being access to finance will be easier for SMEs. Interest rates have fallen to 0.25% which means that small to medium sized businesses will experience cheaper lending, as an SME ourselves we understand that cash deposits are not always an option to dip into so, having access to cheaper alternative finance means that more of the small businesses can invest in development or at least keep their doors open.
“However, with the new interest rate comes a recession warning which is obviously not good for businesses, the downsize on interest may appear to be a positive thing when it comes to lending but it also causes a feeling of doubt which assists the light shining on the idea of the UK heading into a recession due to the outcome of the Brexit vote. Which has already caused some lenders to restrict their own lending criteria based upon this fear. The next 6 months will be very interesting!”