Introduction
The Bank of England recently cut the base rate by 0.25% to 4.75% on the 7th of November following a three-year inflation rate low of 1.7%, (Smith, I., Strauss, D. and Fleming, S. (2024)). This small cut is a tool to boost inflation slightly without making any drastic changes within the current uncertain climate. As the Bank of England attempts to stay on and around their 2% inflation target, they refrain from making any large changes as the recent budget and US election results begin to impact our economy.
What will happen now?
Because of the uncertain landscape, the BofE is unlikely to cut rates quickly or by large amounts; this allows them to assess the landscape without creating big waves. The aftershock of the budget already holds inflationary pressure, with taxes increasing by 40bn and borrowing increasing by 28bn; as these changes begin to take place and affect our day-to-day lives and spending, we will see the effect on our wallets, a further reason for the caution of the central bank.
Another key consideration is the recent election of the soon-to-be US President Donald Trump and his well-known protectionism policies. If Trump does as many people suspect and place global tariffs on the US, there will be global inflationary pressure, another reason for the attempts from the Chancellor and PM to patch up trading relations with the EU.
How will it affect the economy?
The small drop in the base rate will have marginal effects on the cost of borrowing and will pass on down the chain; although the change is small, it is the start of the reduction, and with the Chancellor's plans for investment, hopefully introducing an investment-friendly environment. However, we will need to see further movement from the Bank of England before businesses can see a real change and witness cheaper borrowing costs. The benefit of the slow-moving rates is that the central bank has finally been able to rein in inflation and regain control of prices in our economy. They can now react to external pressures such as Trump and use the base rate effectively, further promoting a robust and stable economy 'open for business' as Reeves has said repeatedly.
How can finance help?
However, even with the hope for a stable growing economy, many businesses still have the need for financing tailored to their unique circumstances, with farmers being a key example with the highly contested inheritance tax introduction.
There are many options for businesses to explore, depending on their situation; for instance, working capital loans can provide a flexible and immediate cash injection to manage short-term expenses like payroll, inventory, or seasonal fluctuations.
Another option is asset finance, this allows for business growth through the addition of working assets without a large capital outlay, preserving cash flow. These and many others are examples of how you can customise finance solutions to match operational demands, allowing businesses to persist and chase opportunities, like new, larger contracts, even in uncertainty.
How you can help yourself
As well as obtaining financial assets, there are other ways to navigate your business through high-interest environments, such as optimising operations and exploring different monetary tools. For example, strategies such as renegotiating supplier payment terms or streamlining operations by reducing unnecessary expenses can be good ways to improve your business function. Furthermore, the use of different financial tools, without accruing large liabilities, can be very useful; some examples include revolving credit or invoice financing to help bridge short-term cash flow gaps. However, all these considerations are only helpful with planning; businesses need to consider their current position and how this will change over the coming months; only then can they look for tools and assets to push them through.
Conclusion
In summary, proactive financial planning is vital to keep your business healthy and competitive; this is always the case. However, it is especially important while the economic climate shifts with changes such as elections and interest rate alterations. Being active in addressing these changes and working to adapt your business accordingly will set you in good stead for the months to come.
Contact Excel-A-Rate today if you're ready to take control of your finances and capitalise on opportunities amidst uncertainty. Our tailored financing solutions can help you navigate the challenges ahead and position your business for success.
Reference List
Smith, I., Strauss, D. and Fleming, S. (2024) Bank of England cuts interest rates to 4.75%, @FinancialTimes. Financial Times. Available at: https://www.ft.com/content/2bbaacb2-7d2d-436a-8ba1-c6aa8fa3226b.
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