The UK's economic landscape: Why now is the time to act!

The UK economy has been a rollercoaster in the last few years, with growth figures fluctuating and interest rates bouncing between highs and lows. Recently, the economy grew by 0.6% between April and June, pulling itself out of a mini recession. This development coincides with the Bank of England's recent decision to reduce its base rate from 5.25% to 5%, a move that aligns closely with the Banking & Finance Teams earlier predictions.

Earlier this year we filmed our predictions for the year ahead and we forecasted that base rates would settle around 4.75% by the end of the year. Given the current trajectory, we might even see rates drop below that, possibly to 4.5%. If that happens, we could be witnessing a new norm for interest rates. Historically, the average base rate over the last 50-plus years has hovered around 5%, despite significant peaks and troughs—ranging from 17% highs to the near-zero rates during the COVID-19 pandemic.

Positive shifts in the lending market

As we look ahead, the market is showing signs of improvement: interest rates are decreasing, and banks are beginning to relax their lending criteria. Many lenders are now waiving fees to attract more business, including early repayment fees, which can make it easier for clients to manage their debt and take advantage of lower rates.

Inflation has been another hot topic. While there was a slight uptick recently, we're currently tracking well below the levels we saw earlier this year. In January, inflation was around 4%, and I anticipated it would drop to about 3% by the end of the year. We're already ahead of schedule, which is encouraging news for both businesses and consumers.

Political changes

Political changes also play a role in shaping the economic landscape. While Labour’s leadership might not officially impact lending markets, any shift in government often brings a fresh perspective that can influence market sentiment. We've seen residential mortgage rates fall, and house prices continue to rise, indicating a broader economic recovery.

It's important to note that the Bank of England's Monetary Policy Committee meets every six weeks, with the next meeting scheduled for September 19, 2024. While some members of the committee may advocate for maintaining the base rate at 5%, I anticipate that we might see another rate reduction as we head into the winter months. This period typically brings economic challenges, such as increased consumer spending around the holidays, which can affect overall market stability.

Seizing the moment

Given these dynamics, now is the time for business owners and management teams to act. We've seen the consequences of waiting during periods of rising rates, particularly in the aftermath of the 14 consecutive base rate increases following the Truss-Kwarteng mini-budget. Businesses that hesitated risk losing out on favourable terms, finding themselves outside of lending policies as rates continued to climb. Don’t let that happen again.

Securing financing now, while rates are favourable, could well turn out to be smart move. Most lenders will sanction a facility for 90 days once it's approved, and once you sign a facility letter, that approval usually extends for another 90 days. This means you could effectively have your terms locked in for six months, giving you a cushion if market conditions change.