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What SMEs Need To Know About The Bank Of England’s Latest Announcements

The Bank of England is cautiously optimistic about the British Economy post-Covid. Here is everything SME owners need to know about its May 2021 update. 

At its May meeting, the Bank of England’s Monetary Policy Committee (MPC) voted unanimously to maintain interest rates at the current 0.1%– a historic low – in response to the Covid crisis. The next review of the rate will occur in June.

The bank also raised the forecast for economic growth across the UK from the February estimate of 5% to 7.25%. That’s an incredible prediction, and if it bears out, it will be the fastest annual growth since the Second World War.

While the outlook is one of cautious optimism, the Bank of England is certainly erring on the cautious side. The popular understanding is that the institution wants inflation to run above target for several months, but forecasts suggest that this is unlikely to work on a program of reduced stimulus.

The British economy is regaining its strength, but the fragile spending and investment landscape remains threatened by ongoing risks from the virus itself as variants continue to emerge along with fears of a Covid resurgence.

Here is everything SME owners need to know about the Bank of England’s May update.

Tackling Ongoing Cashflow Issues 

While low-interest rates mean that consumers have a little more cash to spend, lenders may be less eager to take on risks, which can make it more difficult for businesses to raise capital in the long term. In particular, smaller businesses and firms in sectors that have been most affected by the pandemic continue to report tight credit availability, meaning SMEs looking to bounce back have fewer opportunities to spend on expanding, hiring and investing in new technology.

Government support schemes such as the CBILS have now come to an end, leaving a difficult landscape for businesses seeking access to capital. To compensate, the government has launched a new project called the Recovery Loan Scheme, but it has not received the same media push that CBILS received and remains far less well known. Further, there are relatively few lenders to choose from. However, it is likely to remain the best option for businesses until the interest rate changes.

Uncertainty Continues To Reign 

The uncertainty associated with Covid and Brexit has weighed heavily on investment in recent years, and it persists today. Businesses that report higher uncertainty (or that expect Covid uncertainty to take longer to resolve) also report weaker investment intentions. The widespread uncertainty is also producing a general unwillingness to invest, which is slowing the entire economy down.

Unsurprisingly, activity relating to business travel, corporate hospitality and events, and marketing and advertising, has remained markedly below pre-pandemic levels. These businesses will begin to recover as restrictions lift, but it is already too late for many. Conversely, for many business services firms, such as accountants and IT services, activity has exceeded pre-Covid levels.

With the Bank of England’s latest announcement revealing a high degree of uncertainty, it’s no surprise that SMEs aren’t sure what’s coming next. Unfortunately, there is little that businesses can do to hedge against uncertainty. SMEs will simply have to remain nimble and keep a close eye on trends as they develop.

Lifting Restrictions Is Putting Businesses On Track For Recovery 

Over the past year, many businesses have had to adjust to accommodate social distancing guidelines, and in many cases, this has reduced productivity. For instance, many consumer-facing businesses have reduced the number of customers they can serve at once. As these restrictions are lifted, businesses can expect a return to something approximating pre-pandemic numbers.

While the mandated home working situation may originally have been associated with a decrease in productivity, the gap has almost fully closed by now. To the extent that the limitations of home working have persisted, they have likely been offset by positive Covid-related effects on productivity.

As SMEs begin to return to the office or expand their in-store staff, they should maintain a focus on both productivity and wellbeing. There is a significant risk of burnout for employees any time a business makes a major change, and one lesson we can all take from the last year is that businesses can’t function unless the employees are healthy.

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