Latest news with #BankOfEngland
Entrepreneur
a day ago
- Business
- Entrepreneur
Should You Borrow Now or Wait?
Opinions expressed by Entrepreneur contributors are their own. You're reading Entrepreneur United Kingdom, an international franchise of Entrepreneur Media. UK interest rates remain at a 16-year high. Inflation is finally easing, but the economic outlook is still uncertain. For many small and medium-sized businesses, 2025 has become a year of financial limbo, a moment to pause and ask a critical question: Should we borrow now, or hold off and wait for better conditions? The answer isn't straightforward. On one hand, business confidence is slowly returning, with growing demand for larger loans to fund expansion, relocation, and recovery. On the other, the cost of borrowing remains steep, and lenders are still cautious about who they approve. With the landscape changing fast, knowing when to make your next move and how to prepare for it could make all the difference. Interest Rates Are Likely to Fall, But Not Dramatically After holding steady at 5.25% from August 2023 to May 2025, the Bank of England reduced the base rate to 4.25% on the 8th of May 2025. This marks the first cut in nearly a year, and a one per cent decline over the past 12 months. While this is welcome news for borrowers, experts are warning against expecting dramatic changes. Inflation remains at 3.4%, still above the banks 2% target, and future rate cuts are expected to be gradual. "We think the Bank Rate will be cut to 3.75% by mid-2026," says Ruth Gregory, Deputy Chief UK Economist at Capital Economics. For SMEs considering whether to borrow now or wait, this means potential savings may be marginal, especially when set against time-sensitive opportunities like growth, relocation, or acquisitions. Demand for Funding Is Starting to Rise Again Despite high rates, some businesses aren't waiting. Iwoca's Q1 2025 SME Expert Index found that 42% of brokers expect demand for loans over £100,000 to increase this year, particularly among businesses looking to expand or relocate. At the same time, net lending to SMEs fell by £1.2 billion in Q1 2025, according to the Bank of England, showing that while some SMEs are still hesitant to borrow, others are taking advantage of less competition. If rates begin to fall later this year, as many expect, lenders may receive a flood of applications. Businesses that wait too long could find themselves up against more applicants and tighter lending criteria when they finally decide to act. Expansion Opportunities Might Not Wait for Cheaper Money Some of the best growth opportunities appear in periods of uncertainty. Whether it's securing a discounted lease, acquiring a struggling competitor, or investing in undervalued assets, timing is everything, and in many cases, delaying a decision for marginally cheaper borrowing could mean missing out altogether. "A lot of SMEs wait for the 'perfect' conditions, but by the time they arrive, the opportunity's gone," says Callum Scott, Managing Director at Winchester Corporate Finance. In this context, SMEs with strong growth plans may benefit more from acting early than holding out for small rate drops. Cheaper borrowing can be helpful, but it's no substitute for momentum or market opportunity. Lenders Are Looking for Financial Discipline, Not Just Ambition Even as some lenders start to open their books again, they remain cautious. The British Business Bank reports that only 43% of smaller businesses secured external finance in 2024, down from 50% in 2023. Among those referred to alternative lenders through the UK's bank referral scheme, success rates are still very low. Meanwhile, the Federation of Small Businesses says that 1 in 3 loan applications are rejected due to poor preparation or unclear financials. Lenders want more than a promising growth story; they want to see clean, well-managed accounts and a clear repayment strategy. If you're not confident about your business's financials, from cash flow to forecasts, this may be a good time to pause, plan, and get lender-ready before you apply. That means tightening up your balance sheet, cutting reliance on overdrafts, and forecasting realistically. Being 'Funding Ready' Takes Time, Start Now Either Way Whether you're planning to borrow in the next quarter or not until 2026, the groundwork for a successful funding application needs to start well in advance. Many SMEs only start preparing when they urgently need cash, but by that point, it's often too late to tidy up the numbers or resolve red flags. Lenders want to see consistency and control. That means reducing reliance on short-term fixes like overdrafts, paying suppliers on time, staying up to date with Companies House filings, and having a clear, realistic plan for how the funding will be used and repaid. These aren't just one-off actions; they reflect how your business is run day to day. "Being lender-ready isn't about box ticking, it's about financial habits," says Callum Scott. "If your accounts are solid, your forecasts make sense, and your repayment strategy is clear, you're already ahead of most applicants." Even if you choose to hold off on applying for now, laying that financial foundation puts you in a stronger position when the time comes. It can also help you move faster when opportunities arise without scrambling to fix things at the last minute. For some businesses, the right time to borrow is now. For others, it's later. But in both cases, the smartest move is to start preparing today. Because when the moment comes, the businesses that succeed won't necessarily be the ones that waited; they'll be the ready ones.
The Guardian
2 days ago
- Business
- The Guardian
Growing signs of slowdown in UK jobs market, says Bank of England governor
There are growing signs that the UK jobs markets is slowing as employers respond to higher national insurance contributions (NICs) by cutting hiring and offering weaker pay rises, the governor of the Bank of England has warned. Andrew Bailey said the combined effect of lower employment and weaker wages growth would be considered by the Bank's nine-member monetary policy committee (MPC) when it next meets in August to set interest rates, which now stand at 4.25%. Bailey, who voted to keep rates on hold at the last meeting earlier this month, appeared to be softening his stance after further signs that the economy is faltering following a surprise acceleration in growth earlier in the year. Speaking in London at the British Chambers of Commerce trade conference on Thursday, Bailey said he was hearing 'a bit more evidence' that companies were adjusting pay and employment levels after the rise in employer NICs announced in the last budget. 'In recent months, the evidence that slack is opening up has strengthened, especially in the labour market.' He added: 'The latest data on pay settlements and pay expectations point to a significant decline in wage growth in the year ahead.' The UK economy grew by 0.7% in the first three months of the year before contracting by 0.3% in April. Employment dropped by more than 100,000 in May, marking the largest monthly fall in PAYE payrolls since the same period in 2020 during the first Covid lockdown. Annual earnings in the private sector grew by 5.1% in the three months to April, down from 5.9% in the three months to January. Bailey said: 'The latest intelligence from the Bank's agents continue to suggest average pay settlements for 2025 of 3.5 to 4.0%, closer to levels consistent with the inflation target.' Earlier this month six members of the MPC voted to keep rates on hold while three supported a reduction to 4%. The split was widely seen as an indication of the pressure growing for a rate cut in August. Financial markets expect two further cuts in interest rates this year to 3.75%. Bailey said the underlying growth of the economy was weak and likely to remain subdued for the rest of the year while businesses coped with the uncertainty created by US import tariffs. Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion The governor cautioned that 'there remain uncertainties around the overall balance between supply and demand in the economy as well as the remaining inflation persistence in the system'. He said strong rises in some categories of food showed that inflationary pressures had not gone away. 'The prices of meat, chocolate and non-alcoholic drinks have gone up the most, consistent with higher wholesale prices for beef, cocoa beans and coffee. These price increases are to an extent idiosyncratic, with reports of reductions in cattle herds and climate-related disruptions to coffee and cocoa production. 'But our agency intelligence also highlights labour costs and costs related to new packaging regulation as wider factors at play. And, like energy prices, food prices are salient to consumers. We have to make sure that these increases do not feed through to second-round effects either.' Bank officials have been concerned that high levels of wages growth and extra costs on employers from higher taxes will feed through into higher prices, maintaining inflation above 3%. The consumer prices index edged down to 3.4% in May from 3.5% in April.
Bloomberg
2 days ago
- Business
- Bloomberg
Bailey Says Labour's Payroll Tax Complicates UK Inflation Fight
The Labour government's payroll tax is costing the UK jobs, depressing workers' earnings and pushing up food prices, Bank of England Governor Andrew Bailey said as he warned that the risks to inflation remain 'two-sided.' In a speech to the British Chambers of Commerce's annual conference in London, Bailey said he was 'beginning to hear a bit more evidence of adjustments through pay and employment' due to the £26 billion ($36 billion) increase in employers' National Insurance Contributions that took effect in April.
Yahoo
2 days ago
- Business
- Yahoo
Lenders drop mortgage rates as regulator pushes rule changes
Several lenders have decided to cut mortgage rates amid a mini-price war, even as the Bank of England (BoE) kept interest rates unchanged. The average rate for a two-year fixed mortgage stands at 4.89%, while five-year fixed deals average 5.19%, according to data from Uswitch. The Bank of England has kept interest rates at 4.25% amid inflation fears, delivering a blow to homeowners who were expecting a relief in their mortgage. The primary inflation measure, the Consumer Price Index (CPI), stood at 3.4% in the 12 months to May, a slowdown from the previous month, but well above the BoE's 2% target. Amid the affordability crunch, the Financial Conduct Authority (FCA) has opened the door to greater flexibility around interest-only mortgages, which reduce monthly payments but leave the loan principal outstanding at term-end. The regulator said it was seeking input on 'whether our rules could better support more interest-only mortgages' and suggested such loans 'could be suitable for consumers who may struggle to afford a repayment mortgage and can support sustainable home ownership.' 'Interest-only mortgages could substantially reduce the contractual monthly payment and potentially make the mortgage more affordable,' the FCA added. Unlike traditional repayment mortgages, where borrowers gradually pay down the capital alongside interest, fully interest-only products require only interest payments during the term. The borrower must then repay the full loan amount at the end — a structure that can offer near-term relief but carries long-term risks. Read more: How to save money on your holiday to Switzerland as Women's Euro 2025 kicks off Borrowers can make voluntary overpayments within permitted limits to reduce the principal during the term. If they fail to do so, however, repaying the full balance often requires selling the property. Interest-only loans came under scrutiny after the 2008 financial crisis, with many issued without proof of a credible repayment plan. In 2009, the FCA's predecessor labelled such products 'high-risk' and, by 2012, described them as a 'ticking timebomb.' The regulator now insists that lenders confirm a 'credible repayment strategy' before granting interest-only deals. The FCA also noted shifts in borrowing patterns and labour market dynamics. In 2024, more than two-thirds (68%) of first-time buyers took out mortgages with terms of 30 years or more. 'Many people's patterns of employment in the UK are now very different to those of earlier generations,' the FCA said in a discussion paper. 'There is more use of short-term contracting, zero-hours contracts and more people are self-employed.' First-time buyers with at least a 20% deposit can now buy with an interest-only mortgage. The lender, Gen H, claims it will help make home ownership more affordable, and help those who want to to escape the rental market. This week among the major lenders, Barclays (BARC.L), Nationwide (NBS.L) and Halifax all reduced rates, going deeper into sub-4% territory for those with a 40% deposit. HSBC (HSBA.L) has a 4.01% rate for a five-year deal, unchanged from the previous week. For those with a Premier Standard account with the lender, this rate is 3.96%. Looking at the two-year options, the lowest rate is 3.99% with a £999 fee, also unchanged from the previous week. Both cases assume a 60% loan-to-value (LTV) mortgage, meaning buyers need to have at least 40% for a deposit. HSBC offers 95% LTV deals, meaning you only need to save for a 5% deposit. However, the rates are much higher, with a two-year fix at 5.05% or 4.89% for a five-year fix. This is because their financial situation and deposit size determine the rate someone can get. The larger the deposit, the lower the LTV, allowing buyers to access better deals because lenders consider them less risky. NatWest's (NWG.L) five-year deal is 3.95% with a £1,495 fee, untouched from the previous week. The cheapest two-year fix deal is 3.92%, again the same as last week. You'll need at least a 40% deposit to qualify for the rates in both cases. At Santander (BNC.L), a five-year fix is 4.08% for first-time buyers, the same as the week before. It has a £999 fee, assuming a 40% deposit. Read more: Number of million-pound homes for sale in Britain doubles since 2019 For a two-year deal, customers can secure a 4.01% offer, with the same £999 fee, again unchanged. However, the lender has cut a raft of deals for first-time buyers: 90% LTV two-year fixed rate with a £0 fee and £250 cashback. Rate reduced by 0.15% to 4.73%. 95% LTV two-year fixed rate with a £0 fee and £250 cashback. Rate reduced by 0.14% to 5.00%. 90% LTV five-year fixed rate with a £999 fee and £250 cashback. Rate reduced by 0.10% to 4.47%. 95% LTV five-year fixed rate with a £0 fee and £250 cashback. Rate reduced by 0.22% to 4.85%. The new pricing is available to all customers, whether they are applying via a broker or directly, under Santander's "no dual pricing" pledge. Barclays (BARC.L) was the first among major lenders to bring back under-4% deals and currently has a five-year fix at 3.99%, unchanged from last week. For "premier" clients, this rate drops to 3.98%. The lowest for two-year mortgage deals is 3.89%, a drop compared to last week's 3.97%. Barclays last month launched a mortgage proposition to help new and existing customers access larger loans when purchasing a home. The initiative, known as Mortgage Boost, enables family members or friends to effectively "boost" the amount that can be borrowed toward a property without needing to lend or gift money directly or provide a larger deposit. Under the scheme, a borrower's eligibility for a mortgage can increase significantly by including a family member or friend on the application. For example, an individual with a £37,500 annual income and a £30,000 deposit might traditionally be able to borrow up to £168,375, enabling them to purchase a home priced at around £198,375. However, with Mortgage Boost, the total borrowing potential can rise substantially if a second person, such as a parent, joins the application. In this case, if the second applicant also earns £37,500 a year, the combined income could push the borrowing limit to £270,000, enabling the buyer to afford a home worth up to £300,000. Nationwide's (NBS.L) lowest mortgage rate for first-time buyers is 4.19% for a five-year fix, which is lower than the previous 4.24%. First-time buyers are currently looking at 3.99% for a two-year fix, again lower than last week's 4.04%. Both deals require a 40% deposit and a £1,499 fee. Read more: Best credit card deals of the week The lender has adjusted its mortgage affordability calculation by reducing stress rates by 0.75 and 1.25 percentage points, helping applicants borrow more, whether buying a first home, moving, or remortgaging. Applicants can borrow, on average, £28,000 more; however, in some remortgage cases, customers could borrow up to £42,600 more. Nationwide also reduced its standard stress rate and the rate applied to eligible first-time buyers and home movers fixing their deal for at least five years. Halifax, the UK's biggest mortgage lender, offers a five-year rate of 4.03% (also 60% LTV), lower than last week's 4.02%. The lender, owned by Lloyds (LLOY.L), offers a two-year fixed rate deal at 3.94%, with a £999 fee for first-time buyers, lower than the previous 3.97%. It also offers a 10-year deal with a mortgage rate of 4.78%. Read more: Key questions to ask yourself to plan for a comfortable retirement Halifax has enhanced its five-year fixed mortgage products by increasing borrowing capacity. This improvement allows borrowers to access up to £38,000 more, enabling them to secure larger mortgages based on individual incomes. Rachel Springall, finance expert at Moneyfacts, said: "The flourishing choice of low-deposit mortgages will no doubt be welcomed by borrowers looking to remortgage or are a first-time buyer. "The government has been clear that it wants lenders to do more to boost UK growth, and so a rise in product availability for aspiring homeowners is a healthy step in the right direction." Barclays (BARC.L) currently offers some of the lowest rates on the market, with a two-year fix coming in at 3.89%. NatWest (NWG.L) takes the crown for a five-year fix with its 3.95% deal. However both require a hefty 40% deposit. The average UK house price is £297,781, so a 40% deposit equals about £120,000. A growing number of homeowners in the UK are opting for 35-year or longer mortgage terms, with a significant rise in older borrowers stretching their repayment periods well into their 70s. Read more: Bank of England governor says interest rates path is 'still downwards' Lender April Mortgages offers buyers the chance to borrow up to six times their income on loans fixed for five to 15 years, from a deposit of 5%. Both those buying alone and those buying with others can apply for the mortgage. As part of the independent Dutch asset manager DMFCO, the company offers interest rates starting at 5.20% and an application fee of £195. Skipton Building Society has also said it would allow first-time buyers to borrow up to 5.5 times their income to help more borrowers get on the housing ladder. Leeds Building Society is increasing the maximum amount that first-time buyers can potentially borrow as a multiple of their earnings with the launch of a new mortgage range. Aspiring homeowners with a minimum household income of £40,000 may now be able to borrow up to 5.5 times their earnings. Mortgage holders and borrowers have faced record-high repayments in recent years, as the Bank of England's base rate has been passed on by banks and building societies. According to UK Finance, 1.3 million fixed mortgage deals are set to end in 2025. Many homeowners will hope the Bank of England acts quickly to cut rates more aggressively. At the same time, savers will likely root for rates to remain at or near their current levels. Read more: The pros and cons of getting a mortgage into your 70s How school fees can affect your mortgage borrowing Pros and cons of lifetime ISAs
Daily Mail
4 days ago
- Business
- Daily Mail
Middle East crisis clouds outlook for interest rates: Bailey sounds alarm amid stagflation fears
The governor of the Bank of England has warned that unpredictable events in the Middle East are creating a further headache over interest rates. Andrew Bailey made the comments to peers as oil prices retreated from a spike earlier in the week amid rapidly changing developments in the conflict between Israel and Iran. 'It is so unpredictable at the moment that as we saw in the last 24 hours it can easily change overnight,' he told the Lords' economic affairs committee. Oil price volatility is an issue for the Bank as higher prices can push up inflation – making it harder to cut interest rates. It adds to the difficulty for the Bank as it is already facing the spectre of stagflation – a scenario when the economy flatlines while inflation spirals. The prospect of such a scenario was raised yesterday by another Bank of England official, Megan Greene. The oil price soared to more than $80 earlier in the week after the US bombed Iran's nuclear sites. But it came down sharply to below $70 yesterday as Donald Trump declared there had been a ceasefire and fears eased that Iran would block global oil supplies in retaliation. Bailey told peers: 'We've seen so far rather a big turnaround overnight in terms of the situation with the oil price.' Trump's tariff wars are adding to the chaotic mix, as a 90-day pause in the worst of the levies comes to an end. Bailey said: 'It is very unpredictable where this is all going to end up.' And he pointed out that the impact of trade wars on UK inflation is hard to forecast. It could mean cheap Chinese goods blocked from the US market flooding the UK and bringing down prices. Or it could mean supply chain disruption that pushes prices up. Bailey said he was not 'putting that high a weight' on the latest global developments when deciding on interest rates given the volatility. But he cautioned that it made it even harder to signal the future path of rates. He added: 'I would never give a prediction about what the next meeting will do anyway, but in these circumstances we are particularly careful about what we say on that front because the world is just so uncertain.' He also warned of the weakness of Britain's employment market, as firms respond to Labour's National Insurance raid by scaling back pay and jobs. The labour market was 'softening' and pay rise agreements were 'coming down', Bailey (pictured) said. His comments come after recent figures showing more than 100,000 jobs were lost in May. Earlier at a separate event, Greene – who sits alongside Bailey on the Bank's rate-setting monetary policy committee – flagged the potential for a stagflation scenario. That is especially tricky for central banks because if they hike rates to bring down inflation, that can put the brakes on growth. Greene said: 'I think the risks remain two-sided but skewed to the downside on growth and to the upside on inflation. This is an uncomfortable place to be for a central banker.' The Bank last week left interest rates on hold at 4.25 per cent. Markets are betting there will a quarter point cut to 4 per cent at its next meeting in August.
