The Bank of England has announced it is cutting interest rates to 0.25%, increasing quantitative easing (buying bonds to release more cash into the financial system), and extending its Funding for Lending scheme to encourage banks to continue lending to businesses and consumers.
The Bank has taken action because it is anticipating a rapid deceleration in growth. No one used the word recession – but actions speak louder than words and this is a significant package of measures aimed at averting exactly that risk.
For charities, like everyone else, the overall health of the economy matters. It affects their beneficiaries’ wellbeing, their donors’ giving, the money available for public services, their own costs and resources available to fulfil their missions.
The key question is whether the Bank's package does enough to help the economy at this time and what more the government can do - having already ditched its austerity targets – to boost confidence and investment, while Brexit continues to cast a cloud of uncertainty over the country’s future.
For charities, today’s announcements will have other, though smaller, effects:
- Reduced return on savings. Charities are net savers, so lower interest rates will have some effect on their available resources.
- Charitable foundations that invest their money are also likely to see lower returns – which could have a knock on effect on the money available to distribute as grants, though some may choose to give out the same or greater amounts anyway if they perceive needs to be rising.
- Charities that operate overseas are already seeing their buying power significantly reduced, because of falls in sterling. The cut in interest rates is likely to see this trend continue.
- On the upside, charities that want to expand their services or diversify by investing in property may benefit from falling commercial property prices (thanks to NCVO's @RosJtweets for highlighting this point).
Overall though, it’s still a case of wait and see. The ONS has published a list of its forthcoming releases that will give some greater indications of what’s happening in the economy since the referendum. And the government’s autumn statement will be critical for setting out its revised plans and fiscal measures.