 has held interest rates at 4%, the lowest level since February 2023.){kind=link}
The Bank of England (BoE) has kept interest rates at 4%, the lowest level since February 2023.
As predicted by experts, the Monetary Policy Committee (MPC) maintained the current rates. Seven members voted for them to be held and two said they should be cut by 0.25%. The figure was reduced from 4.25% in August.
The decision comes with inflation currently at 3.8%, above the Bank’s 2% target.
Many analysts have predicted that the base rate will stay at 4% for the rest of 2025. The final decision on interest rates this year takes place in November.
The base rate influences what banks and building societies charge customers for finance, including business loans. The decision means interest rates for businesses looking to cut their costs will not come down.
In its summary of the decision, the MPC said:
“A gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate. The restrictiveness of monetary policy has fallen as bank rate has been reduced.
“The timing and pace of future reductions in the restrictiveness of policy will depend on the extent to which underlying disinflationary pressures continue to ease. Monetary policy is not on a pre-set path, and the Committee will remain responsive to the accumulation of evidence.”
Speaking at a press conference, Bank of England governor Andrew Bailey warned “we’re not out of the woods yet” on inflation, adding that “any future cuts will need to be made gradually and carefully”.
Reaction on what interest rates held at 4% means for SMEs
James Bentley, director at Financial Markets Online, said:
“There is precious little to cheer for small businesses in the Bank of England’s decision.
“No base rate cut means no monetary stimulus for Britain’s stagnant economy, and by ruling out any cuts until at least November, the Bank’s hard line will slam the door on any prospect of business finance getting cheaper.
“So SMEs who already have a bank loan, or plan to apply for one, won’t see their interest rates coming down any time soon.
“All this against a backdrop of painfully high inflation, which eats into SMEs’ profit margins. CPI stood at 3.8% last month, and the Bank conceded in the minutes of today’s decision that it could climb even higher during September.
“The other impact of today’s rate hold is less obvious but no less painful. British businesses that export to America could suffer as the Bank of England’s decision may drive up the value of the Pound against the Dollar in coming weeks.
“Sterling has risen 8.7% against the Dollar since the start of the year. While this is great news for British travellers heading to America for some autumn sun – who will see their spending money stretch further – it’s bad news for British businesses exporting goods and services to the US.
“The combination of President Trump’s tariffs and the weakness of the Dollar against the Pound has made it harder for British businesses to compete in the US.”
Mike Randall, CEO at Simply Asset Finance, said:
“Flat rates will be welcomed for now, but rising employer costs and uncertainty around November’s Budget could create a challenging backdrop for SMEs. If unaddressed, these factors risk holding back confidence if businesses are left guessing about the direction of travel.
“Nevertheless, for SMEs it remains business as usual – adapting, investing, and focusing on the long term – with a noticeable rise in the number of businesses turning to asset finance to manage costs and unlock their growth. What business leaders need now is clarity and stability from policymakers, so that short-term resilience can be translated into sustained growth and investment for the future.”
Neil Rudge, chief banking officer for commercial at Shawbrook, said:
“The latest news from the Bank of England is likely to leave UK SMEs disappointed, though not entirely surprised, given last month’s persistently high inflation figures.
“Experts remain divided on how quickly the MPC might cut interest rates, with forecasts varying and growing uncertainty over whether there will be a further reduction this year. Business owners will be hoping momentum is heading in the right direction, and as rates fall, SMEs could benefit from lower borrowing costs, making previously shelved expansion plans more viable in the new year.
“Beyond tracking the shifting macroeconomic landscape, SMEs will also be keeping an eye on the upcoming Autumn Budget. Our latest research indicates that nearly a quarter (24%) of business leaders in the UK feel that SMEs are only a low priority for the government, highlighting that business owners want to see more action to support economic growth.”
Jonathan Andrew, CEO of Bibby Financial Services, said:
“Today’s Bank of England decision to hold interest rates at 4% comes as little surprise, given yesterday’s announcement that inflation remains significantly higher than the Bank’s target.
“With the ONS forecasting weak GDP growth and the tightening of the labour market, it feels unlikely that interest rates will fall this side of the New Year.
“While UK SMEs are demonstrating resilience in the face of difficult trading conditions, economic challenges continue to apply further pressure. The Chancellor has a critical opportunity in the Autumn Budget to prove that SMEs remain at the centre of the government’s growth strategy. What that looks like is simpler taxes and greater incentives to help small businesses not only survive, but flourish.”
Anna Leach, chief economist at the Institute of Directors, said:
“The MPC’s 7–2 vote to hold Bank Rate at 4% is the right call. With CPI inflation expected to edge up to 4.0% in September, food inflation climbing towards 5.5% by the end of the year, and elevated inflation expectations, the Bank cannot afford to ease its grip on price stability.
“November’s decision, however, will be a tricky one. Business confidence and hiring remain under pressure as we head towards a difficult Budget with a substantial fiscal hole to fill. At the same time, firms continue to face acute cost and pricing pressures following the rise in employment costs. Given the UK’s recent inflation history, the priority must remain to squeeze out any remaining price pressures.”
Isaac Stell, investment manager at Wealth Club, said:
“The BoE currently faces a dilemma, easing rates risks further fuelling inflation, but high rates strain an already weak economy. Add into the mix a government that is due to deliver a budget that needs to plug a black hole running into the tens of billions and the quandary becomes ever more complex.
“For now, the real action may lie not with the Bank, but with Westminster. The BoE remains sat on the sidelines, waiting to see what tax and spending decisions emerge in the budget. Moves prior to this could backfire and the Bank likely wants to see to see whether the government manages to navigate the budgetary gauntlet before making its next play.”