Base rate cut: The ripple effect on business funding

Published by Abbey Watkins on 13 February 2025

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On 6 February, the Bank of England made a significant decision to reduce the base rate by 0.25%, bringing it to its lowest level since June 2023. This move reflects the central bank’s response to evolving economic conditions and aims to stimulate growth.

In addition to the rate cut, the committee has also revised its growth projections, slashing the forecast from the previous 1.5% to a modest 0.75%. This substantial downgrade indicates a more cautious outlook on the economy’s performance in the near term.

Given these revised growth forecasts, it is not surprising that the market may undergo a reprice. There is an expectation of additional rate cuts throughout 2025, but this will need to be balanced with the ongoing anticipation surrounding the country’s inflation figures over the coming 12 months.

What does this mean for your business?

For most SME’s, the immediate impact of the rate cut may not be noticeable. However, the reduction in base rate combined with the expected trajectory for further reductions this year should make fixed rate lending offers cheaper and provide some more certainty surrounding cash flow and future business projections.

The expected reduction in borrowing costs could also enhance accessibility in the funding sphere, lowering some of the barriers to entry for various finance options.

Lower rates inevitably increase competition among lenders, potentially leading to improved loan terms and more favourable rates for borrowers. This competitive environment can be advantageous for businesses seeking funding, as it may result in better financing options and reduced costs.

The reduction could also have a significant impact on businesses looking to refinance, as they come towards the end of existing fixed deals. The decision provides a good opportunity to help plan the impact of a change in rates, either positive or negative, when existing rates expire.

If you are considering seeking funding, refinancing or simply want to explore your options, businesses should take independent advice. The Kreston Reeves funding team is here to assist you. We can help you navigate the current financial landscape and find the best solutions for your business needs.