How might higher rates affect small firms?

Higher rates can make borrowing and financing more expensive, adding to pressures from energy bills, wages, supplier prices and operating costs. Smaller firms often have limited financial cushions, so even a modest increase may be difficult when combined with cautious customers and other rising expenses.

Can any businesses benefit from higher rates?

Businesses with healthy cash reserves may earn better returns on savings if their banks pass on the rate increase. The benefit will vary by business, however, and may not offset higher borrowing costs or other rising expenses.

What can business owners do now?

Owners can review their borrowing arrangements, update cash-flow forecasts, check the returns on savings and reconsider future investment plans. Planning ahead and staying adaptable can strengthen resilience. Further rate increases are not certain, as the Bank says its decisions will depend on economic conditions.

Rising interest rates: a necessary evil or another unwelcome cost for business?

Q: Why did the Bank raise rates?

The Bank of England raised its base rate to 4% to help curb spending and contain persistent inflation. Inflation was 3.5% in September, and pressure from global energy prices has raised concerns that it could reach about 5% by mid-2027. The Bank says future rate decisions will depend on economic conditions.

CREATED BY ROGER EDDOWES

Published: 09/11/2026 @ 09:00AM

#BankOfEngland #InterestRates #SmallBusinessFinance #BusinessCosts #UKSmallBusinesses

The Bank of England's latest decision to increase the base rate to 4% has put rising interest rates for small businesses back in the spotlight. For business owners already dealing with higher energy bills, wages, and operating costs, another increase is hardly welcome news ...

Rising interest rates may be necessary to curb inflation, but they bring businesses another unwelcome cost.

However, with inflation proving stubborn, it's worth considering whether this decision might ultimately help businesses rather than simply adding to their financial pressures. The difficulty with rising interest rates is that their impact on small businesses isn't always straightforward.

Both borrowing and financing will
become more expensive!

At the same time, businesses holding healthy cash reserves might benefit from improved savings returns, assuming their bank passes on the increase. As ever, the consequences depend largely on individual circumstances.

The Bank of England's reasoning is understandable. Inflation reached 3.5% in September, and pressure from global energy prices has raised concerns about further increases. The Bank now expects inflation to reach about 5% by mid-2027. Higher interest rates are intended to curb spending and stop rising costs from spreading through the wider economy.

But there's an uncomfortable question here: How much pressure can smaller businesses reasonably absorb before the cure becomes almost as painful as the problem?

Unlike larger organisations, smaller firms rarely have substantial financial cushions. A modest increase in borrowing costs might be manageable in isolation, but add rising supplier prices, energy bills, and cautious customers, and the picture becomes much more challenging.

Nevertheless, allowing inflation to continue unchecked
would create problems of its own!

Businesses need stability to plan confidently, set prices and make investment decisions. Persistently rising costs make all three considerably harder. The most sensible response isn't to dwell on whether the Bank of England made the right decision, but to focus on what business owners can control.

Reviewing borrowing arrangements, updating cash flow forecasts, checking savings returns and examining future investment plans are all worthwhile exercises. Even relatively small adjustments can improve financial resilience.

It's also important not to assume that further increases are inevitable. The Bank has made clear that future decisions will depend on economic conditions rather than following a predetermined course.

Ultimately, rising interest rates present both challenges and opportunities for small businesses. While nobody welcomes additional financial pressure, businesses that understand their numbers, plan ahead and remain adaptable will be better positioned to navigate whatever comes next.

Until next time ...

ROGER EDDOWES
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About Roger Eddowes ...

Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.

Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.

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Rising interest rates: a necessary evil or another unwelcome cost for business?

Both borrowing and financing willbecome more expensive!

But there's an uncomfortable question here: How much pressure can smaller businesses reasonably absorb before the cure becomes almost as painful as the problem?

Nevertheless, allowing inflation to continue uncheckedwould create problems of its own!

It's also important not to assume that further increases are inevitable. The Bank has made clear that future decisions will depend on economic conditions rather than following a predetermined course.

Both borrowing and financing will
become more expensive!

Nevertheless, allowing inflation to continue unchecked
would create problems of its own!