As high taxes take their toll, firms call for interest rate cuts

Business leaders last night urged the Bank of England to press ahead with interest rate cuts this week. The heads of the Confederation of British Industry (CBI), British Chambers of Commerce (BCC) and Federation of Small Businesses (FSB) told the Daily Mail that now was the time to lower borrowing costs to ease pressure on companies and households struggling despite four rate cuts since last August.

They also warned firms have been clobbered by Rachel Reeves' £25billion National Insurance tax raid on employers. Fears are mounting of more tax hikes this autumn to plug a gaping hole in the Chancellor's Budget plans. A report by the Institute of Directors last week showed business confidence has collapsed to a record low under Labour, with morale lower than during Covid lockdowns.

Interest rates are expected to be cut from 4.25 per cent to 4 per cent on Thursday – though with inflation well above the 2 per cent target and the highest in the G7 at 3.6 per cent, the CBI warned the Bank is 'walking a tightrope'. Alpesh Paleja, deputy chief economist at the CBI, said: 'We expect a rate cut and then two more after that, so that rates settle at 3.5 per cent early next year.'

'However, interest rates rank fairly low in the spectrum of costs. Firms continue to grapple with the rise in employer NICs, high energy costs and more general uncertainty. The cumulative burden is something the Government needs to be mindful of, as we head closer to the next Budget.' David Bharier, head of research at the BCC, said small firms in particular 'are increasingly impatient for more cuts'.

He added: 'Interest rate cuts are only part of the solution right now. For many SMEs, the cost of doing business is too high with new tax and administrative burdens. To restore business confidence and stimulate investment, a comprehensive growth plan is essential.'

Martin McTague, chairman of the FSB, said: 'Small firms will be hoping for a cut to ease some of the financial pressure they are under and enable more of those who need finance to grow to access it.

'If no cut is forthcoming, the Bank should set out a clear path for the rest of the year, building in a gradual easing of the base rate to encourage investment and unlock growth.'