Home Business NewsBusinessBusiness Growth News What will an interest rate cut mean for British M&A?

What will an interest rate cut mean for British M&A?

by Thea Coates Finance Reporter
12th Jan 24 11:16 am

Analysts from Investec, Deutsche Bank and Oxford Economists have reassessed their outlook for inflation this year, following a surprising drop in the consumer prices index (CPI) to 3.9% in November.

According to the forecasts, a slump in global energy prices and the wholesale cost of oil will contribute towards the rate of inflation falling below 2% within the first four months of 2024.

Claire Trachet, CEO/Founder of the business advisory, Trachet, assesses what a potential interest rate cut would mean for the M&A sector in the new year.

2023 has proven to be a difficult year for the UK’s dealmaking ecosystem, according to a recent report from the London Stock Exchange Group’s Deals Intelligence Team.

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The total value of mergers and acquisitions involving UK firms fell by 33% over the course of 2023 – a continuation of the decline in activity that has occurred since the post-pandemic boom of 2021.

Over the previous year, companies and investment funds were encouraged to reign in spending due to continued hikes to the base rate of interest, peaking at 5.25% in August. As a result, capital has shortened within the dealmaking scene, as the number of new UK investment funds dropped to a 20-year low over the year.

As fears of a recession continue to grip experts from across the country, many are predicting an interest rate cut from the BoE citing the surprising fall in inflation alongside demonstrable signs of fiscal contraction. According to Claire Trachet, cutting interest rates would allow struggling scale-ups and SMEs to form the backbone of a prospective M&A comeback as access to capital from traditional funding sources eases, allowing for a dealmaking resurgence on the back of the mid-sized merger.

Claire Trachet, CEO/Founder of Trachet said, “Many voices from across the investor landscape are calling on the BoE to urgently reassess their macroeconomic priorities in the new year. With inflation set to continue its rapid fall and symptoms of a potential recession worsening, it’s time that policymakers looked towards kickstarting the UK’s economic recovery.

“Within the M&A sector, the mid-sized merger is poised to dominate the dealmaking landscape, with many overseas investors looking to buy-up undervalued UK-based startups. A cut to interest rates by the BoE would, therefore, be essential in allowing domestic investors to take a greater share within the UK’s projected M&A recovery, reverting the focus back towards high-growth ventures.”

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