Businesses hope to benefit from dramatic BoE interest rate cut

At midday, the Bank of England surprised even the optimists by slashing interest rates by 1.5 percentage points. The base rate now stands at 3%, the lowest for over fifty years, raising hopes that small businesses may receive some much needed relief.

The dramatic cut is a determined attempt by the Bank to stimulate the economy following a series of worrying economic reports from the housing, retail and manufacturing sectors in recent weeks.

With the UK economy slowing rapidly, and inflation heading southwards, several business organisations have welcomed the news.

John Wright, National Chairman of the FSB welcomed the news on behalf of the UK's small businesses, but raised fears that the banks may not pass on the rate cut to borrowers.

“... We called for a bold one per cent cut and this unexpectedly large rate cut will make an enormous difference to small firms and will put money in people's pockets before Christmas. The cut amounts to a generous saving for small firms of £750million on loans and overdrafts.

“But all this will come to nothing if the banks do not follow through and pass on the rate cuts to those small firms struggling with increased costs of credit.”

Richard Lambert, Director of the CBI, said the cut achieves what his organisation has been calling for:

"Business and consumer confidence has been deteriorating sharply in recent months, and recession has replaced inflation as the major threat to the economy over the next year or two.

"This cut of one and a half percentage points should help to ease conditions in the credit markets, and allow banks to pass the benefits on to their customers."