Interest rates set to remain at 14 year high
Today policymakers at the Bank of England confirmed interest rates will stay at 5.25% but they have hinted at a potential June cut.
At 12pm today, 9th May 2024, experts claimed that although inflation is looking to be ‘moving in the right direction’ as it is expected to hit its target of 2% and would fall to just 1.6% in two years, interest rates will remain at 5.25% – the highest level experienced within the last 14 years.
Members of the Bank’s rate setting monetary policy committee (MPC) – which is comprised of nine individuals – were found to be split on the decision to hold rates at the same level. Swati Dhingra and Dave Ramsden voted to slash rates down to 5%.
However, despite being overruled, it seems support to lower interest rates are growing. In the previous meeting, Dhingra was the only one who voted to cut them.
Andrew Bailey, the Bank’s governor, has suggested that a rate cut at its next meeting in June is a possibility.
‘Before our next meeting in June, we will have two full sets of data – for inflation, activity and the labour market – that will help us in making that judgement afresh,’ Bailey said. ‘But, let me be clear, a change in bank rate in June is neither ruled out nor a fait accompli.’
News of keeping interest rates at 5.25% has, however, come as a shock for small and medium-sized enterprises (SMEs).
Douglas Grant, Group CEO of Manx Financial Group, said: ‘Today’s decision to maintain interest rates at the same level will reassure some businesses and consumers but frustrate others. The path however is set for rates to come down and small and medium-sized enterprises (SMEs) should seize this opportunity to re-evaluate their current lending arrangements and strengthen their positions.
‘Research conducted by Manx Financial Group reveals a significant shift in the financial landscape for SMEs. In contrast to the previous survey, where only 25% faced challenges, the current findings indicate that two out of five SMEs are now grappling with operational slowdowns or halts due to a lack of external financing.
‘The survey also underscores that 15% of SMEs seeking external finance or capital are unable to secure the necessary funds. This financial constraint, coupled with a potentially unprecedented and volatile environment marked by ongoing conflicts, multiple elections, a tightening labour market, and persistent cost-of-living challenges, poses obstacles to the prospects of SMEs and national economic growth.
‘The current government has demonstrated the effective implementation of short-term loan schemes, and we advocate for the next government and Treasury to continue this focus. Prioritising the establishment of a permanent government-backed loan scheme, tailored to resilient sectors and involving both traditional and non-traditional lenders, could be instrumental.’
Daniel Austin, CEO and co-founder at ASK Partners, has welcomed the announcement with open arms as he claims it will benefit the real estate sector.
‘Holding steady at 5.25 per cent as expected is welcome news from the Bank of England for many in the real estate investment market as the UK property sector remains in recovery mode and is starting to adjust to the ‘new normal’ rate environment,’ Austin said. ‘We’re now starting to see a gap in monetary policy develop in Europe with the Swedish central bank deciding to cut for the first time in eight years yesterday.’
Austin added: ‘For those currently looking to invest in commercial and residential real estate without the hassle of ownership, alternative avenues such as property debt investment, which can provide higher returns and also access to liquidity via a secondary market, are becoming more popular.’
In March it was reported that inflation dropped to 3.2% and is expected to have fallen to 2% in April after a reduction in the energy price cap, bringing down household bills monthly.
The Bank said inflation would be bumpy this year after a rise towards an average of 2.5% in the second half of 2024, before falling again in 2025 and 2026 to 1.6%.
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