The Bank of England's latest rate cut marks a pivotal moment for businesses and consumers alike. With inflation temporarily falling below the Bank of England’s 2% mandate, this decision signals both relief and caution. Here's what the rate change means for businesses, the risks ahead, and how to prepare for change.
The key figures that made headlines
- The Bank of England (BoE) was caught badly wrong with inflation peaking at 11.1%. Whilst it dipped below the 2% Consumer Price Index (CPI) inflation mandate it has now risen to 2.3% and is predicted to rise.
- The BOE committee voted unanimously (8-1) to cut rates by 0.25%.
With a base rate now at 4.75% down from 5.25%, businesses with debt on variable borrowing rates (think overdrafts) and consumers with tracker mortgages or standard variable rates (SVRs) have something to cheer as monthly costs reduce on their borrowings.
Base rates now expected at 3.5% in 2026 with higher inflation risks
Throughout 2024, the BoE has been highlighting that continued disinflation would see CPI down below 2% but inflation would rise again to 2.75%. They were comfortable looking through that inflation, to cut rates and forecast lower rates in the future.
Only a few short months ago, the market was expecting base rates to fall to 3% by early 2026. Inflation risks are now tilted higher - driven by the recent Autumn Budget, the Trump election and the escalation of the conflict in the Middle East - hence the rate cut cycle is expected to end 0.5% higher at 3.5%.
The voice to pay attention to: Catherine Mann
The one objector to a rate cut was Catherine Mann. Mann has consistently voted for higher rates than her peers at the BoE on the way up and has consistently voted for slower cuts on the way down - as per her no cut vote this time. Why? She is the one most concerned about inflation and this makes Catherine Mann the voice that might hold us all accountable. I watch her votes very carefully. Given the BoE are widely regarded to have got it wrong as inflation spiked, she was right, or perhaps, the least wrong.
Pressure on prices coming from all fronts
The recent tax and spend Budget is expected to lead to higher prices. Taking the Employers National Insurance (ENI) change from the recent budget - Tesco’s will see a £250 million increase and Sainsbury’s a £140 million increase in their ENI’s - with margins so tight in the food chain, increased costs will be be felt at the till and consumers will feel the heat. This is just one example.
The Trump election will likely see trade tariffs range from 10-20% on all imports and 60% from China. The risks of a trade war are growing and with it: prices.
The tragic events unfolding in the Middle East have not had the negative economic impact on global prices that events of this magnitude have had in the past. The Bank of England, of course, is watching closely.
Control the controllables
Given the fact that we are unable to control any of the above, as individuals running businesses we must focus on what we can control. With the Tax and Spend Budget, we are expecting a bump in GDP next year and that will trickle down to businesses, so we can plan for opportunity, but we must also plan for change and make sure that we have the resources available for that change.
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If you are seeking funding - we have been seeing rates fall over the last two quarters. Like fixed mortgage rates, business funding rates will respond more to swap rates than the base rate, so lower base rates doesn’t necessarily mean lower fixed borrowing rates, but for now we are enjoying that trend. We can help fund your business from over 130 lenders, and many more product types. Sign up for free or login to apply for funding if we could help.
Whilst it feels challenging out there, there are many opportunities for those who have the energy and the resilience to navigate. Or as Albert Einstein put it: in the middle of difficulty lies opportunity.
Paul Surtees,
CEO - Co-Founder at Capitalise
