Alternative lenders welcome cut to base rate
The Bank of England’s (BoE) long-awaited cut to the base rate today has been welcomed by commentators in the private credit space, although further cuts may be slow to follow.
In its first cut to the base rate for four years, the BoE reduced the rate from 5.25 per cent to five per cent, prompting widespread optimism for the future of the economy.
“The potential for reduced borrowing costs should give businesses the confidence to kickstart plans that may have been put on the back burner in recent years,” said chief banking officer for commercial at Shawbrook Neil Rudge.
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Shojin Property Partners chief executive Jatin Ondhia said: “The decision is a key indicator of the growing sense of economic stability and will likely open up new opportunities for investors as they reassess how to manage their portfolios.”
He added: “While the base rate has now fallen, it’s from a 16-year high – interest rates still remain significantly above the levels that many landlords had become accustomed to before the hikes. As such, diversification will remain a prominent trend going forward, with a balance of savings products and lower-risk investments alongside higher-risk opportunities to provide potential for greater growth.”
Agreeing that this is a sign of “growing confidence in the economic outlook”, Simply Asset Finance chief executive Mike Randall said: “Our new government previously made clear its intention to ‘pull up the shutters’ for Britain’s small businesses and entrepreneurs.
“We now must action this by creating policy that removes barriers, encourages investment and prioritises growth. With the date for the Autumn Budget now announced for October and the Chancellor looking to fill its £20bn black hole in public finances, there is no time to lose in creating a robust environment for our businesses and kickstarting growth for the years to come.”
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The BoE Monetary Policy Committee (MPC) made the decision on the basis of just four votes to cut, against five to hold the rate, so the decision was a close call.
After almost three years of above-target inflation rises, inflation fell to two per cent in the past two months. This seems to have been enough to sway the MPC.
Some commentators remain cautious about whether there will be further cuts to come due to inflation in services remaining high, relative to goods prices.
“We will likely see a shallow trajectory of cuts, perhaps at a roughly quarterly pace, towards the four per cent level next year,” commented Rob Morgan, chief investment analyst at Charles Stanley today. “There could be a faster cutting cycle only if growth disappoints or inflation becomes more firmly subdued, which looks unlikely.”
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