The Bank of England has announced a further reduction in interest rates, cutting them by a quarter of a percentage point to 4.5%. This decision aims to ease borrowing costs for businesses and consumers alike, offering potential relief to the UK hospitality sector, which continues to navigate economic challenges.
The latest move from the Bank signals a likelihood of additional rate reductions in the near future. Notably, two members of the Monetary Policy Committee (MPC) pushed for a more aggressive approach, advocating for a half-percentage-point cut. Their stance suggests that further easing of monetary policy may be necessary to support economic stability.
Despite this reduction, the Bank has revised its economic growth forecast downwards. It now anticipates that the UK economy will narrowly avoid a recession in the coming months. Additionally, it has downgraded its outlook on the economy’s ability to generate income, casting doubt on the strength of future growth.
Industry experts within the UK hospitality sector have reacted to the announcement with a mix of cautious optimism and concern. Lower borrowing costs could offer relief to businesses still recovering from recent economic pressures, including rising operational costs and fluctuating consumer demand.
Governor Andrew Bailey emphasised the Bank’s commitment to maintaining economic stability, stating:
“It will be welcome news that we have been able to cut interest rates again today. We will continue to monitor economic conditions closely and take a measured approach to any further reductions.”
Bailey reaffirmed that keeping inflation low and stable remains a top priority. The Bank’s forecasts indicate that at least two additional rate cuts may be on the horizon in the coming years, with the ultimate goal of bringing inflation closer to its 2% target.
The Bank’s latest Monetary Policy Report suggests that the UK economy is likely to experience subdued growth for the foreseeable future. Forecasts for economic expansion over the next three years have been downgraded, and inflation projections have been adjusted upwards. Additionally, the economy’s potential growth rate has been revised downward, currently estimated at 0.75%, a significant drop from the 1.5% rate seen last year.
Kate Nicholls, Chief Executive of UKHospitality, said:
“Cutting interest rates was the correct move from the Bank of England and I’m pleased that they’ve done the right thing to incentivise growth.
“Driving growth has to be the priority and lower interest rates will play a part in achieving that goal.
“Practically for hospitality businesses, it will provide some much-needed relief for those still paying back Covid loans but we urge the Government to allow more flexibility over the repayment periods for those loans to further ease the pressure on venues.
“If the Government really wants hospitality businesses to help deliver its growth agenda, it should delay the changes to employer NICs.
“After the sector was the biggest contributor to economic growth in November, these tax changes will slam the brake on the sector’s growth potential and instead force businesses to cut investment, cut jobs and increase prices.”
Thomas Cantor, Co-Head of Short-Term Finance at West One Loans, commented:
“Whilst inflation has crept above the Bank of England’s target of two percent in recent months, the rate of inflation seen over the back end of last year has remained largely stable and significantly below the peak seen towards the end of 2022.”
So today’s base rate cut was largely expected and whilst it may only be a small step in the right direction, the hope is that this trend will continue over the course of the year, bringing some much needed impetus to the economy, helping to drive further positive sentiment in 2025.”
With economic headwinds persisting, hospitality businesses will be watching closely to see how these rate cuts translate into tangible benefits. Many in the industry are calling for broader policy support to help sustain growth and protect jobs across the sector.