What will the Interest Rates Cut mean for SME Investment?

12th August 2016

Last Thursday, the Bank of England announced that it would be cutting interest rates for the first time since 2009. Now at 0.25%, this record low level is destined to have a profound impact on the investing and saving patterns of British people as they likely reconsider their current financial strategy.

As part of the announcement, the Bank of England also announced £170 billion of additional measures to stimulate the British economy, including an expansion of its quantitative easing programme by £60 billion. These measures aim to increase the amount of spending within the private sector and prepare the market for the ongoing implications arising from Britain’s decision to leave the European Union (EU).

From an investor perspective, the cutting of interest rates to record lows is likely to make alternative finance platforms a much more attractive option. The inability to generate large returns from traditional bank saving deposits as a consequence of low interest rates means that an increasing number of investors will be looking to new investment opportunities. With the alternative finance sector expanding at an impressive rate, and investor sentiment towards SMEs resoundingly high in the wake of Brexit, alternative finance platforms such as debt and equity crowdfunding are likely to increase in popularity amongst both institutional and retail investors.

In the longer term, the interest rate cut is representative of a longer term transition the British economy will continue to experience in the lead up to Britain’s withdrawal from the EU. All sections of the UK economy need to be prepared for the changing investment landscape, particularly equity and debt crowdfunding platforms. Our CEO Luke Davis was featured in Global Banking & Finance this week explaining why equity crowdfunding platforms need to adopt the lead investor model, thereby ensuring they are prepared to handle future investor and business demand. The article can be access here.

Low interest rates, coupled with positive investor sentiment towards British SMEs could have very positive implications for the private sector. For this reason, government and industry bodies need to ensure that they proactively link investors with businesses through increased education and accessibility to alternative finance options.