Interest rate cut good for business, says CIPS CEO

5 August 2016

The cut to the basic rate of interest by the Bank of England (BoE) could be good for business as it encourages hesitant buyers to change their stance and place orders. 

The base rate was cut to a historic low of 0.25% on Thursday. The BoE also announced a stimulus package of £70bn worth of bond buying and a £100bn funding scheme for banks.

The packages came the same week as Markit and CIPS released the results of their first Purchasing Managers’ Index (PMI) conducted fully after the referendum. The results indicated a 0.4% drop in quarterly GDP, based on the combined decline in the manufacturing, construction and service sectors.

Given the concerns in the procurement and supply chain community highlighted in this weeks PMI results, David Noble, group CEO, CIPS, said the cocktail of policies announced by the BoE would be “essential to cushion the economy against the effects of the Brexit contagion”.

“Bolstering the banks so they can lend to business at substantially lower rates should encourage those previously hesitant to place orders to change their stance,” he added.

This week’s PMI results saw employment fall in the manufacturing and construction sector, and stall in the service sector, and business confidence plummet.

Next month’s result would be a stronger indication of how much damage the Brexit vote has done to the economy, and whether these stimulus measures can return business confidence, said Noble.

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