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The Bank of England’s quarter-point interest rate cut alongside a landmark US-UK trade deal, are welcome developments, according to Fenton Burgin, Debt Advisory Partner at S&W.
British businesses still face considerable challenges, he says, but they should be ready to “pivot to growth”.
The rate change alone was unlikely to alter fortunes, according to Burgin. “UK firms badly needed this good news, but a 0.25 bps cut was mostly priced into expectations,” he says.
“While the cut will reduce the cost of debt for businesses, they still face formidable headwinds.”
Despite the US-UK trade deal announcement, ongoing uncertainties around the implementation and the wider global tariff landscape will continue to create a “drag effect” for businesses, he warns. They also face a challenging domestic economic outlook.
“UK tax rises and weakening growth have hit UK business confidence hard, and it continues to look tough for the government to meet borrowing targets without further public spending cuts or tax rises in the Autumn that would both risk reinforcing a low growth business environment.”
In April, the Institute of Chartered Accountants in England and Wales (ICAEW) found UK business confidence had fallen to its lowest level in over two years.
“How the government threads the needle to stimulate business growth in the face of rising labour costs, ongoing uncertainty at home and abroad, weak confidence and wafer-thin fiscal headroom remains a key issue facing British businesses right now.”
Despite the gloom, however, Burgin says the trade deal is a reminder that sentiment could shift quickly and some UK fundamentals remain strong.
“Improved inflation figures, stronger than expected first quarter growth and the outlines of a trade deal with the US could prove the turning point we’ve been looking for,” he says. Businesses should be ready to react to any pick-up in activity, he advises.
“The outlook could change quickly depending on the details. With a strong legal framework and robust regulatory environment, the UK remains an attractive base for business and investment, with world-leading expertise in sectors such as technology, services, and pharmaceuticals. This deal could materially accelerate overseas and UK investor interest in those sectors,” he says.
“Cheaper finance and significant institutional investor interest in mid-market companies mean businesses should have plans in place to pivot to a growth footing if we see an upturn or openings. With so much uncertainty, you need to be flexible to react to both the risks and opportunities a volatile environment can bring.”
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