The decision to hold the Bank Rate is unsurprising. For food manufacturers, Gareth Anderson, head of business management at Allica Bank says it should allow for continued cautious growth over Q3.
“Combined with better-than-expected inflation figures earlier in the week and a tentative peace in Iran, the Bank’s decision indicates that the costs of capital and borrowing remain stable – welcome news for a sector that has faced sustained pressure on margins from elevated ingredient, packaging and energy costs,” Anderson added.
Black agreed the move – while expected – will be a welcome relief for the sector.
“It would have been a shock if there had been any change to UK base rates,” he said.
“With the potential opening of the Straits of Hormuz due to the MoU between Iran and the USA, inflationary pressures are already easing; crude oil has fallen below $80/barrel and should ships start moving, all sorts of goods – aluminium, ammonia, helium, and urea can help ease some of the supply chain constraints.”
Lower inflationary momentum will also ease the pressure on the BoE to raise interest rates. However, as Black notes, “we are not totally out of the woods yet,” with policymakers waiting for more data before deciding on next steps.
He added that by not raising rates, the cost of money should be more stable – and could even slightly lower in time – for companies with debt and/or thinking of investing using borrowings.
“If the Middle East situation improves, it is far from fanciful that over the next 12-18 months UK base rates will fall by c0.25-0.50%,” he predicted.
“So, an encouraging decision for most of the British food system with maybe better news still to come.”
Anderson agreed, explaining that a rate cut would have risked a weaker pound and decreased purchasing power, which could have driven up the cost of imported raw materials, commodities and other inputs that food producers depend on.
“Stability is what food manufacturers need now following the recent energy price shock, and today’s decision delivers that,” he said.
“The challenge now is to support food manufacturing businesses – especially the established producers with between 5 and 250 employees who are critical to this sector – as they look to put investment and growth plans into action.
“These businesses are the engine of the sector, supplying retailers, foodservice operators and export markets, but have sometimes struggled to find the tailored financial support they need, especially in a challenging macroeconomic environment.”
Karen Betts struck a similar tone, noting that the new ‘uncertain’ normal is driving up the overall costs of food production.
“This makes it all the more important that government acts where it can – to prioritise food manufacturers for energy support and by prioritising and rationalising regulation, freeing businesses to invest in vital long-term resilience,” she added.
