By Abigail Li
I. US Rate Policy: Powell vs. Trump
The Bank of England’s latest rate cut signals a cautious but noteworthy shift in monetary policy, offering some level of relief to households and businesses while still facing lingering worries about inflation and economic fragility. The UK’s central bankers face a moderate retreat from a 4.5% peak interest rate with cuts toward 4.0% on the horizon by the Bank of England, signaling a cautious pivot towards “easier money”. While Governor Andrew Bailey cautioned that inflation remained above target, the fifth cut in twelve months, it marks a deliberate step amid concerns about job losses and headline price stickiness. Meanwhile, their American counterparts are undergoing a more conflicting rate debate.
In Washington, President Donald Trump vocalized his desire for steep rate relief, even urging a plunge to 1% and publicly denouncing Federal Reserve Chair Jerome Powell, snidely referring to him as “Jerome ‘Too Late’ Powell”. Nonetheless, Powell has maintained a steadfast stance, backing up his decision with data-driven conclusions. At the Federal Reserve’s late-July meeting, rates were held steady at 4.25-4.50%. Powell noted that rate decisions swayed by political influence threatened policy credibility.
Despite this news, markets price in about 100% odds of a cut in September, in accordance with moderating inflation and early signs of the labor market cooling. Powell has yet to respond to Trump’s increasingly escalated rhetoric, which has included threats of legal action to force a retreat.
II. Commercial Real Estate (CRE) and Housing
In CRE and housing, high borrowing costs persist and continue to stifle CRE activity. According to Freddie Mac data, for the week ending August 8 2025, the US average 30-year mortgage rate was 6.67%, sparking a 23% spike in refinance applications at the same time home-purchase applications slowed down. These metrics flag how elevated rates keep CRE transactions muted. The impact is evident as many businesses that own office assets are facing rising debt burdens and vacancies, while banks are seeing growing stress on their CRE loan portfolios. In particular, CRE delinquencies rose by 23% to over $116 billion by the end of March 2025, underscoring mounting financial strain among property owners and lenders.
In the UK, refinancing pressure is at a high, with more than one million households facing the burden of drastically higher mortgage payments due to fixed-rate terms expiring. External remortgaging volumes dropped 10% in 2024, in the face of affordability constraints that hurt transaction volumes. In Britain, high-profile landlords such as the Canary Wharf Group have already been forced into complex refinancing deals to avoid defaults, highlighting how the strain is impacting flagship assets.
In both the US and UK, these shifts have arisen due to the fast repricing of debt after years of extremely low interest rates, in addition to structural changes in demand. For instance, the rise of remote work and the pivot toward rental housing are two key factors. Analysts predict that this could mean future recovery will be uneven, with industrial and multifamily assets stabilising first while office and retail sectors continue to struggle in the face of refinancing pressures and decreased investor appetite.
III. Start-ups & Capital Flows – UK Exits
Entrepreneurial dynamism — the rate of new business creation — is similarly under strain. In the first quarter of 2024, venture capital raised totaled approximately $3.9 billion – down sharply from $4.8 billion in the previous quarter. This stark contrast underscores the tightening of investor risk appetite as higher interest rates increase the cost of capital and as valuations are diminished. Founders face a more demanding environment for early-stage funding, as more venture investors shift towards later-stage or more resilient sectors such as healthtech and AI.
This worrying trend is not unique to the US. Fintech firms are also leaving the UK. Across Europe, venture flows slowed in 2024. Investors were cautious and avoided loss-making tech ventures. Asia saw a similar occurrence: start-up fundraising in markets such as India and Southeast Asia decelerated sharply compared with the high-growth years of 2021–22. Globally, entrepreneurial energy is at a low due to the combination of tighter monetary policy, geopolitical uncertainty, and an investor focus on profitability over growth.
One long-term implication of this trend is that the slowdown risks rooting a “lost cohort” of start-ups into never achieving scale, with London’s financial centre already losing ground as fintech firms seek deeper capital pools abroad. Wise, for example, a central global payment platform, has shifted its primary listing from London to New York to access better capital pools and liquidity.
Resolution depends on both policy and markets. The UK government has pledged to expand pension-fund investment into growth companies and reform listing rules to attract more scale-ups to public markets. Venture investors, on the other hand, suggest that once interest rates ease, the backlog of capital could be deployed at a higher rate. If reforms succeed and global conditions stabilise, today’s funding drought could potentially lead to a more selective but sustainable form of entrepreneurial action.
IV. Consumer credit signals – BNPL Case Study
While macro conditions seem to be tightening, analysts report that consumers remain surprisingly resilient, particularly in their use of credit. In the UK, increased household costs have squeezed disposable income, yet rental demand is on the rise, especially in the face of affordability increases in mortgages. The Buy Now Pay Later sector, historically a driver of discretionary spending, faces greater regulation in the UK, with the HM Treasury unveiling draft legislation to bring providers under its authority and proposing reforms to update the Consumer Credit Act to create an oversight framework.
In the US, while consumer spending remained relatively stable, BNPL showed signs of strain. The product is increasing in popularity and estimates that US transaction volume will grow to $116.7 billion in 2025 from $94 billion in 2024. However, behind the growth, there are hints of financial stress: data from the Federal Reserve show that the number of customers who missed at least one payment rose from 15% to 24% in 2024. One major provider, Klarna, reported a 17% rise in consumer credit losses this fiscal year, reflecting a rising failure of customers in repaying BNPL obligations.
V. Broader Business Themes: Trade, Housing, Data Integrity & Policy Risk
The US is experiencing a period of business uncertainty, driven by public anxiety over trade policy and the credibility of economic data. April’s “Liberation Day” tariffs imposed costs on businesses, highlighting potential challenges they could face in the upcoming months.
Three key challenges this could result in include: manufacturers reliant on foreign components face higher input costs, retailers thinner margins, and exporters risk retaliatory responses from trading partners. Supply chains that had only just begun to stabilise after the pandemic are being re-routed again, with firms considering reshoring or diversification strategies that add complexity and expense. Bloomberg warns that tariffs could cause inflationary pressures to return just as central banks are attempting to ease the economy, leaving businesses squeezed with higher costs and weaker consumer demand.
Simultaneously, the Bureau of Labor Statistics chief, Erika McEntarfer, was fired after a disappointing round of jobs data. Her replacement is a partisan appointee, E.J. Antoni. This replacement has raised concerns over the politicization of critical economic indicators and data. Market analysts have highlighted that trust in public statistics is waning, and may ultimately push companies to use private-sector data, further worsening decision-making by businesses that rely on this data.
The move is significant because if trust in official data erodes, firms may increasingly rely on private sources, introducing bias and impairing decision-making. For businesses, this means higher costs, weaker confidence in benchmarks for inflation and jobs, and uncertainty itself could hinder growth.
The views expressed in this article are the author’s own and may not reflect the opinions of The St Andrews Economist.
Image Source: Heute.at