UK Interest Rates Drop to 1%
The Bank of England cut interest rates to 1%.
Before the decision there was much conjecture whether interest rates would be frozen or cut.
The Federation of Small Businesses (FSB) was amongst those that favoured the rates to be kept on hold.
It argued that what was needed was improved access to capital.
A survey of its members found that 63% wanted rates to remain at their current level, compared with only 24% who wanted a further cut.
Talking to the BBC, FSB national chairman John Wright said
“These figures suggest that the recent interest rate cuts are not having the desired effect and other means of economic stimulus are required.”
Echoing these comments, Andrew Sandiford – Partner at the progressive accounting firm Target – said:
“Any further reduction is to be welcome, assuming it gets to business customers.
However, the rate is no longer the key issue. What matters is availability of credit, at a sensible price without unrealistically onerous covenants. It is now time for Government rhetoric to filter through the bank branches and into the real SME economy.
Isn’t it about time that the government started to show the tax payer what they are getting for there stake in the banks?”
We see lower interest rates provide the following opportunities for SMEs;
- Re-capitalisation. Don’t be shy to go and see you bank and look to re-capitalise your business. With low rates, you can inject some cash, solve some problems, buy time, possibly even gain a competitive advantage.
- Switch debt. If you are carrying credit card debt on high finance rates or vehicles on other short term finance that is fixed at high rates, perhaps consolidating your debt into a longer term position with low interest rates will help ease cash flow in the short term.
As we are in uncertain times, you really need to know your cash position and keep a very close eye on your cashflow. Do your bank reconciliation daily. Check and chase down your debtors daily by sending them statements and calling them.
If you are planning a visit to your Bank Manager to adjust your lending structures, then show him/her Xero and run through the reports. This will help provide confidence that you know your numbers.