The Federation of Small Businesses has welcomed the Bank of England’s decision to cut the base rate from 4 per cent to 3.75 per cent, while warning that lower borrowing costs alone will not be enough to revive confidence and investment among small firms.

The rate cut, announced by the Monetary Policy Committee in December, is the latest step by the Bank to support an economy showing signs of slowing growth. Business groups say the move offers some short-term relief but needs to be followed by wider policy measures if it is to translate into meaningful economic momentum.

Tina McKenzie, policy chair at the FSB, said the decision reflected the pressures facing the economy but stressed that it was only part of the solution. She said small businesses were central to any growth strategy, noting that without greater confidence to invest, hire and expand, economic activity risks stalling.

She added that sentiment among small firms remains weak, particularly concerning given the time of year. Retail, hospitality and leisure businesses are entering what should be their busiest trading period, yet many owners remain cautious about the months ahead.

The FSB also warned that previous base rate reductions have not always filtered through to lower borrowing costs for small businesses. McKenzie said delays, or in some cases a lack of movement in commercial loan rates, were continuing to deter firms from borrowing to fund growth.

Another concern highlighted by the organisation is the widespread use of personal guarantees on business loans, regardless of loan size. According to the FSB, this practice limits entrepreneurs’ willingness to take risks and invest for the long term.

While the rate cut was described as welcome news, McKenzie suggested its impact would be modest without further government intervention. She pointed to the King’s Speech next spring as an opportunity for ministers to set out more ambitious measures to support small firms.

In her words, the decision was “a bit of good news for small firms”, but one that on its own was unlikely to transform confidence or growth prospects in the near term.