Interest rates slashed for the second time
Today Bank of England policymakers revealed interest rates would come down to 4.75% from 5%.
The reduction, which was announced early yesterday afternoon, is the first time rates have been below 5% since June 2023. The decision came after data was published showing the UK Consumer Prices Index (CPI) inflation fell to 1.7% in September, the lowest level since April 2021.
Chancellor of the Exchequer, Rachel Reeves, said: ‘[The] interest rate cut will be welcome news for millions of families, but I am under no illusion about the scale of the challenge facing households after the previous government’s mini budget.
‘This government’s first Budget has set out how we are taking the long-term decisions to fix the foundations to deliver change by investing in the NHS and rebuilding Britain, while ensuring working people don’t face higher taxes in their payslips.’
Against this backdrop, experts outlined inflation falling below the Bank’s 2% target level has encouraged policymakers to ease interest rates, releasing pressure on borrowers and individuals with a mortgage across the UK.
The news has prompted a number of reactions from industry experts, including Michel Lowy, co-founder and CEO of SC Lowy – a leading alternative asset manager with $1.6 billion in assets under management.
Michel said: ‘Following the Bank of England’s second rate cut this year, signs suggest a shift in UK monetary policy toward a more supportive stance amid ongoing economic concerns. The adjustment acknowledges slower-than-expected growth and aims to ease borrowing conditions. Notably, Rachel Reeves’ fiscal realignment in the Autumn Statement marks a perceived inflection for the BoE, which has, until now, maintained a more hawkish tone than other major central banks – even after inflation fell to 1.7%.’
‘For private credit markets, the Bank of England’s shift reflects fresh avenues for global businesses seeking alternative financing as traditional bank lending becomes more restrictive,’ he continued. ‘As tighter lending practices from conventional banks push borrowers toward private credit, opportunities for creative, bespoke funding structures increase, especially in sectors with distinct financing needs, such as real estate, healthcare, and technology.’
‘Unlike Asia, where credit demand is strong and borrowing costs remain favourable, a more tempered economic outlook and narrower credit spreads call for finely tuned, flexible private credit strategies,’ Michel said.
‘These differences between regions emphasise the critical need for adaptive, forward-looking approaches from private credit investors. As inflation and fiscal policy trends diverge globally, investors will need to balance risk tolerance with localised strategies to capitalise on regional opportunities and optimise returns. The dynamic interplay between monetary easing, economic recovery speeds, and inflationary pressures highlights the value of a nuanced strategy, positioning private credit as an increasingly essential component in the evolving financial landscape.’
In addition, Douglas Grant, group CEO of Manx Financial Group, added: ‘The Bank of England’s decision to lower interest rates to their lowest level since last June aligns with positive news that UK inflation has fallen below the 2% target for the first time in over three years. This policy shift, alongside controversial Autumn Budget fiscal plans, provides a potential boost for UK investments after a period of economic stagnation. However, high input costs and possible inflationary pressures from the Chancellor’s measures mean that businesses must adapt their lending strategies to stay resilient in a still uncertain market.
‘Recent research from Manx Financial Group shows that nearly a third of UK SMEs have paused or reduced operations due to financial constraints—an improvement from 40% in 2023 but still significant, with around 10% of SMEs struggling to access external finance. Given SMEs’ role in driving growth, employment, and innovation, the Labour Government must foster a supportive lending environment for their resilience and expansion. Both traditional and alternative lenders are key to this, as inadequate financing could hinder recovery amid rising taxes, geopolitical tensions, and cost-of-living pressures.’
On the topic of pressures, inflation isn’t expected to stay as low as 2%. This is because within the Autumn Budget Rachel Reeves announced almost £70billion of extra annual spending, funded by business-focused tax hikes and additional borrowing.
What’s more, Donald Trump’s victory this week could also impact our economy. Some economists have explained that Trumps desire to introduce tax cuts and higher trade tariffs are inflationary.
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