The Bank of England held interest rates at 5.25% despite continued falls in the rate of inflation and a return for growth for the UK economy in January.

The Bank’s Monetary Policy Committee (MPC) voted by eight to one to hold the base rate at 5.25%, the fifth month in a row that it has stayed at that level.

The Bank said that it needs to be certain that inflation will fall to its 2% target and stay there before making cuts to rates.

David Bharier, Head of Research at the BCC, said the decision to hold rates was widely expected.

He added:

‘However, it prolongs the period of uncertainty for firms grappling with high borrowing costs.

‘While [the] inflation data showed a further easing, most small businesses know that the economy remains fragile. The interest rate is itself a driver of inflation, as housing, rental, and borrowing costs continue to rise.

‘Our most recent forecast expects some cuts to the base rate going forward, potentially falling to 4.5% by the end of the year. But in the meantime, businesses need reassurance from policymakers that there is a clear plan to drive much needed economic growth.’

The Bank’s decision followed the release of data that showed the pace of inflation has slowed.

It fell to 3.4% in February, according to the Office for National Statistics (ONS).

That is down from 4% in January and December, and the lowest rate for nearly two and a half years.

The slower pace of food price rises helped push down overall inflation, along with soft drinks, restaurants and hotels, the ONS said.

This effect was partially offset by petrol prices and rental costs.

Meanwhile, the UK’s economy returned to growth in January, according to the ONS.

The economy grew by 0.2% during the first month of 2024 following a fall in output during the previous month.

The economy was boosted by stronger sales in shops and online and more construction activity in January.

The ONS said the services sector led the bounce back after retailers struggled to draw in shoppers in December.

Internet link: BoE website BCC website ONS website ONS website

The productivity and efficiency of SMEs is suffering as a result of poor HMRC services, according to members of the Association of Chartered Certified Accountants (ACCA).

In a survey of ACCA members, 66% said that poor HMRC services were having a negative impact on their clients, with small businesses ‘bearing the brunt’ of this issue.

This is a 14% increase in negative sentiment from the previous ACCA survey in October 2023, demonstrating that SMEs are ‘reaching breaking point with the service’.

Glenn Collins, Head of Strategic and Technical Engagement, ACCA UK, said:

‘Our members have repeatedly raised that dealing with HMRC is the number one issue they face in their daily work.

‘Repeatedly we hear from our members of delays around basic requests such as VAT registration numbers, and a severe lack of skilled staff to handle more complex enquiries. This most recent survey reiterates our previous feedback to the Chancellor and HMRC and shows that in the space of six months service levels have declined even more.

‘ACCA will continue to call for the Chancellor to properly fund HMRC, raise the levels of service standards, and to lean on accredited finance professionals wherever possible to ensure accuracy across the board.’

Internet link: ACCA website

New measures aim to ‘break the spell’ of financial fraudsters by giving payment providers more time, according to draft legislation published by the government.

Until now, payment service providers such as banks have generally been required to process payments by the end of the following business day, giving a limited timeline to investigate and alert relevant parties to possible fraud.

The draft legislation will give payment service providers a further 72 hours to investigate payments, but only where there are reasonable grounds to suspect fraud or dishonesty. The legislation has been designed to minimise any impact on legitimate payments.

The UK has seen an increase in authorised push payment fraud over the past few years – in 2022 victims lost £485 million to these scams.

Economic Secretary to the Treasury, Bim Afolami, said:

‘Fraudsters spin whole webs of lies and fabricate all sorts of things to convince people to send them money – this legislation will give banks, other payment service providers and law enforcement more time to get in touch with victims and break the fraudster’s spell before money is sent.

‘The government is absolutely committed to tackling fraud and recognises the impact of this devastating crime on victims – this legislation is another tool in our arsenal to fight fraud.’

Internet link: HM Treasury press release

The introduction of the UK’s National Minimum Wage (NMW) in 1999 is the single most successful economic policy in a generation, according to the Resolution Foundation.

The NMW has increased the pay of the UK’s lowest paid workers by £6,000 a year compared to their earnings simply rising in line with typical wages, says a report from the think tank.

The report notes that the policy was introduced 25 years ago against a backdrop of rising pay inequality. 

Between 1980 and 1998, hourly pay growth in the UK was twice as fast for the highest earners as it was for the lowest earners.

But since 1999 – when the NMW was brought in – this trend has reversed, and hourly pay inequality has fallen with pay growth for the lowest earners five times that seen by the highest earners.

Nye Cominetti, Principal Economist at the Resolution Foundation, said:

‘The policy was introduced in the face of fierce opposition, but now experiences strong cross-party support. With its current remit ending this year, now is the time to discuss the future of the minimum wage and low pay more widely ahead of the election.

‘Politicians should reflect on why the minimum wage has been so successful – such as the combination of long-term political direction and independent, expert-led oversight – and whether this approach could be broadened to tackle some of the UK’s other low pay challenges.’

Internet link: Resolution Foundation website

HMRC’s decision to halt its plans to restrict taxpayer helplines and direct people to online services instead has been met with relief by the Federation of Small Businesses (FSB).

The tax authority had announced that it was closing its self assessment helpline for six months every year. It was also restricting the opening times of its VAT helpline and the usage of its PAYE helpline.

HMRC says it is halting these plans ‘in response to the feedback while it engages with its stakeholders about how to ensure all taxpayers’ needs’.

The FSB says that more investment in digital and telephone is needed – not a reduction in service.

Tina McKenzie, Policy Chair, FSB said:

‘Small businesses will definitely be relieved that the drastic reduction in HMRC’s helpline opening hours has been paused. We are very glad that HMRC has listened to the chorus of dismay which greeted its initial announcement.

‘While online services are a key part of the communications mix for the tax authority, sometimes there’s just no substitute for a real human on the end of a phone line who can listen, engage, and help untangle issues.

‘Before phone line cuts are considered, HMRC needs to build capacity in its digital services, as if those are improved – with real people online to offer help instead of chatbots – many small firms like to interact with the tax authority this way, as it can be more flexible and available out of hours.’

Internet link: GOV.UK FSB website