The Rate Hold That Changes Nothing – and Everything

Yesterday at noon, the Bank of England’s Monetary Policy Committee (MPC) made its latest call on UK interest rates, deciding to stick with a base rate of 3.75%. Keeping an eye on things over the last few weeks, I wasn’t overly surprised at the outcome, with many prominent people I know in finance predicting no change. From a business owner's perspective, this was good news; however, I still think it is important that people are aware of what is happening within the MPC, as if you’re not paying attention, it could cost you.

The Vote Tells the Real Story

The interesting thing is that the MPC voted 7-2 to keep the Bank Rate unchanged, as policymakers weighed easing inflation against continued uncertainty from volatile global energy markets linked to Middle East tensions. Notably, two members voted for an immediate hike to 4%. Think about that: two of the nine most senior economic policymakers in the UK looked at the data this week and concluded rates need to go up, straight away. This is something that business owners utilising debt products need to be mindful of. At April’s meeting, just one member dissented in favour of a rise - the first such vote since the tightening cycle ended in summer 2023. This month, that number has doubled; hence, the direction of travel within the bank is now very clear.

What This Means for Your Business

For local business owners who are relying on debt which is coming up for review, renewal, or refinancing in the next 12 months, the message is clear and unambiguous. The restructuring/refinancing process needs to start ASAP. It is important to know that banks don’t wait for the Bank of England to act before they move. Lending appetite, pricing, and terms all shift in anticipation of where rates are heading or projecting to go, not where they are today. When it comes to refinancing, timing is everything, and a business that enters a refinancing conversation in a rising rate environment, under time pressure, with a facility already at or near expiry, is negotiating from a vulnerable position. The businesses that plan accordingly for this and act in good time, and with a clear picture of what the market can offer, will often secure better terms, better structures, and better outcomes. Like everything else in life, if you leave it to the last minute, it will leave you with fewer options and undoubtedly less favourable terms.

Twelve Months Sounds Like a Long Time. It Isn’t.

A thorough refinancing process - reviewing your existing facilities, stress-testing your numbers, approaching the right lenders, and negotiating terms - takes time even in straightforward circumstances. If you add to this rising rate uncertainty, a loss in lender appetite, and the complexity that most SME balance sheets carry, that timeline compresses quickly. In every refinance and/or restructuring case we have undertaken for a client at GDP over the years, it is absolutely the case that the most successful clients were always those who approached the business in good time and were well organised.

GDP Partnership

At present, our team at GDP Partnership are working hard to arrange over £15 million of new finance for business owners across Northern Ireland, working with a range of funders, across the sectors, to find the right solution for each business. As I mentioned previously in my newsletter, at the present time, there are still quite a few options out there for clients and the debt markets are open. However, as set out in this piece, given the direction of travel of the MPC, it would be prudent to assume that competitive terms won’t stay open indefinitely. Given we are now firmly in the summer months, there is a tendency for some business owners to take their eye off the ball, particularly when it comes to resolving issues within the business, especially when it comes to a business's financial affairs. The message I would like to convey this week would be that engaging in financial vigilance and being on the front foot over the next few months is the prudent approach to running your business.

That’s all for this week, but if you do find yourself in this position where you need some assistance with the funding stack in your business, please reach out to me.

Until next week, look after yourself,

Conor