# Interest rates are cut to an all-time low. What will this mean for small businesses?
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2016-09-10
Category: BUSINESS
Category URL: https://financedigest.com/category/business
Meta Title: How will UK interest rate cut impact small businesses and
Meta Description: Discover the potential effects of the recent UK base rate cut on small businesses, from increased lending access to consumer spending trends post-Brexit.
URL: https://financedigest.com/interest-rates-are-cut-to-an-all-time-low-what-will-this-mean-for-small-businesseshtml

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_By **Liza Armstrong**, Online Advisor, Mi Ventures_

The recent cut in the UK base rate from 0.5 percent to 0.25 percent was taken to alleviate the effect of June’s Brexit vote which resulted in forecasts stating that the economy would shrink by 0.4 percent in the third quarter.

The results of a [survey](http://www.fsb.org.uk/docs/default-source/fsb-org-uk/fsb-small-business-index-q2-2016.pdf?sfvrsn=0) by the Federation of Small Businesses (FSB), which represents small and medium sized businesses in the UK, show that business confidence among its members was at a four-year low.The pessimism felt by many over the UK’s economic outlook will be hard to shift, so how will this cut in interest rates affect small businesses?

**Lending**

Access to finance is an issue faced by many start-ups and [small businesses](https://www.financedigest.com/small-businesses-run-out-of-cash-before-they-run-out-of-potential.html "Small businesses run out of cash before they run out of potential"). The FSB survey cited that only 16 percent of their members reported applying for credit in quarter 2 of 2016.  Cheaper borrowing should offer encouragement to these businesses to apply for funding and enable more start-ups to get off the ground.  Banks have been told that they must pass on these lower borrowing costs to their customers and the ‘Term Funding Scheme’ recently announced will provide cheaper lending to banks to enable them to do this.

**Consumer Confidence**

A survey conducted in July by market research institute GfK showed consumer confidence to have plunged to its lowest since 1994.  Consumers are cutting back on spending on non-essential items which could impact on businesses operating in the fashion, travel and lifestyle sectors. The cut in interest rates may help in some way towards alleviating the fear felt by many UK consumers since Brexit and improve consumer spending, and with no benefit for savers they may well choose to spend their money. The hope therefore is that many UK [small and medium sized businesses](https://www.financedigest.com/small-businesses-and-scams-what-you-need-to-know.html "Small businesses and scams: What you need to know") should see an increase in consumer spending on their products and services.

**Future Outlook**

While many small business organisations welcome this cut in the short term, they have also voiced their concern for the long-term outlook. Despite the package of measures announced by Mark Carney, there are still many experts who believe that businesses won’t borrow and consumers won’t spend in these uncertain times.

On the same day as the announcement on interest rates was made, the Prime Minister hosted a Small Business Summit on Brexit where she heard from representatives of the UK’s small and medium businesses. The Government will set out its spending plans in the autumn as well as it’s time table for Brexit. Both businesses and consumers may adopt a ‘wait and see what happens’ stance until then.


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