The Bank of England left interest rates unchanged at a 16-year high of 5.25% on Thursday, fuelling more fervent calls for the central bank to cut rates at their next opportunity.
“For businesses, lower borrowing costs would help alleviate financial strains, enabling them to invest in innovation, expansion, and workforce development,” said Nigel Green, CEO and founder of the deVere Group, a leading independent financial advisory and fintech.
“The reduced interest expenses would also enhance profitability, supporting business resilience and competitiveness in an increasingly challenging operating environment,” Green said.
“Households stand to benefit significantly from a rate cut, as lower mortgage rates translate into reduced monthly payments, freeing up disposable income for consumption and savings.”
The deVere CEO added that lower borrowing costs make homeownership more accessible for aspiring buyers, thereby stimulating demand in the housing market.
“By easing financial burdens on households, a rate cut would bolster consumer confidence and spending, driving economic growth from the ground up,” Green said, arguing that investors, too, have much to gain from a shift in monetary policy towards accommodative measures.
He said that lower interest rates tend to fuel demand for risk assets, such as equities, as investors seek higher returns in a low-yield environment.
Rate could would drive stock prices
As equity markets thrive on the prospect of easier monetary conditions, “a rate cut by the BoE would help drive stock prices and unlock investment opportunities across various sectors,” Green said.
Furthermore, the monetary policy time lag underscores the importance of pre-emptive action by central banks to address economic challenges effectively.
“Given the lag between changes in interest rates and their impact on the economy, proactive adjustments are essential to prevent the onset of downturns and mitigate the risk of recession,” the deVere CEO said.
“By initiating rate cuts in a timely manner, the BoE can provide timely stimulus to the economy, cushioning the impact of adverse shocks and fostering sustainable growth.”
He said that critics may argue cutting rates could fuel inflationary pressures, exacerbating the ongoing inflationary concerns.
However, it’s essential to recognise that inflationary dynamics are multifaceted and influenced by various factors beyond monetary policy alone.
Plus, the BoE has the necessary tools and expertise to “manage inflation expectations effectively while supporting growth objectives through judicious rate adjustments.”
“Enough is enough,” Green concluded.
“The time has come for the BoE to take decisive, bold action and begin cutting rates from 16-year highs at its next meeting.”
