The Bank of England has cut interest rates to 4.5%. It has also cut its growth forecast from 1.5% to 0.75%.

Gus Williams, interim CEO at Chambers Wales South East, South West and Mid, said:

“The Bank of England is cutting rates despite flagging the risks to inflation rising again this year, highlighting that fears of weak growth and a shallow recession in many parts of the UK are now moving to the forefront of the bank’s thinking.

“The rate cut should be balanced with the fact that the Bank of England seems to be undertaking quantitative tightening by selling bonds on its books or allowing them to mature – a lever that will reduce money supply and counter the impact of reducing rates. Getting to 2% inflation looks unlikely next year with many firms indicating they will increase prices, mostly due to National Insurance and National Minimum Wage increases from April.

“Given the government has ruled out increasing borrowing further to kickstart the economy, all eyes are now on whether the government can make a real dent on issues such as planning reform and bottlenecks in skills and labour. Weak construction figures also out today are a concern, although the winter is often bad for construction output. The major projects the government announced will have little short-term impact on confidence.

“High interest rates need to be accompanied by fiscal transfers within the UK from the overheating parts of the country to those already in recession but this is not really happening. The Welsh economy really needs interest rates back down to 3.5% or below to restore business confidence, but I don’t see a clear path to this over the next 12 months unless there is more upfront pain. Hopefully the UK and Welsh Governments will now increase their collaboration with businesses to help solve some of the fundamental issues inhibiting productivity and investment.”

David Bharier, Head of Research at the British Chambers of Commerce, said:

“Given the raft of cost pressures and global economic uncertainties businesses are facing, today’s interest rate cut provides a measure of relief for SMEs.

“Since the Autumn Budget our research has shown a significant fall in business confidence, with fewer firms expecting to increase turnover over the next twelve months. The Bank’s report references our data, and their GDP forecast reflects this. Policymakers must act quickly and work with businesses to rebuild confidence and drive growth.

“UK businesses are facing a range of challenges. Domestically, firms face increased tax bills and employment costs within weeks, with national insurance and minimum wage hikes. Internationally, a looming trade war could hit many UK importers and exporters. This is likely to feed into heightened inflation throughout the year.

“The government needs to pull all levers possible to ease the cost pressures on firms and unlock investment opportunities. That includes accelerating business rate reform, supporting infrastructure projects and boosting trade opportunities.”