Interest rate cut – what does it mean?

The Bank of England has cut interest rates a quarter of a point to 5.5 per cent. This is the first rate cut since August but what does it mean for your business? spoke to Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants (ACCA) to get a view on the changes.

‘The rate cut reflects the slowdown in the economy over the past 12 months and is aimed at keeping things under control’ he says. ‘There has been concern over the level of debt in the UK and the potential for house prices to fall.’

Roy-Chowdhury warns that market conditions could get pretty challenging for small businesses over the next 12 months before they start to get better, saying: ‘Consumer confidence is a big issue at the moment, with people unable to afford credit so this move is not a bad one for small businesses in the run up to Christmas and should help to maintain the buoyancy of the economy.’

A larger cut in interest rates could have indicated a certain amount of panic on the part of the Bank of England, but as it stands a quarter of a point drop is good news for business. ‘It’s what businesses should expect and is in line with previous moves,’ he adds.

For small businesses, it should mean fewer bad debts, which is a major cash flow concern for business owners. Debtors should be more willing and more able to pay, meaning more cash available for running your business.

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