How does the current Bank of England base rate affect businesses?
2-minute read
The Bank of England Monetary Policy Committee meets several times a year to decide on the base interest rate.
The last time the base interest rate was this high was in 2008. What does this mean for businesses?
What is the Bank of England base rate?
The Bank of England base rate is set by the UK’s central bank. This is the rate that high street banks and other commercial lenders use when setting their own interest rates.
The Bank of England’s Monetary Policy Committee meets eight times a year, where the committee votes on any changes to the base rate.
By setting the base rate, the Bank of England can respond to changes in the UK economy.
The current Bank of England base rate is 5.25 per cent and was held for the second time in a row. This Bank of England interest rate decision was announced after the Monetary Policy Committee meeting on 2 November 2023.
The next Bank of England interest rate decision will be on 14 December 2023.
Bank of England interest rate predictions
As mentioned, interest rates change according to what’s happening in the UK economy.
The last time interest rates were this high was 2008, before an era of cheap money began during the financial crisis.
That era has ended, with economists predicting that interest rates will only start falling in early 2024 (inews.co.uk).
While the Bank of England is responding to rising inflation, there’s the risk that the economy could slow too much if interest rates increase too quickly.
And despite the increases, interest rates aren’t keeping up with rising inflation. This means that the value of cash savings is still being eroded, as you can’t buy as much with your money.
What do interest rates mean for businesses?
Interest rates signal how much it costs to borrow money, as well as how much savers can earn by putting money aside.
Interest rates are important for businesses, as funding often comes in the form of borrowing money. When interest rates rise, things like small business loans become more expensive. It also means more expensive mortgages.
Changes in interest rates can also affect consumer behaviour. Higher interest rates encourage saving rather than spending and are typically used in response to increasing inflation.
When the cost of goods rises due to pressures on demand, higher interest rates help relieve that pressure (in theory), as consumers hold fire on spending and taking on more debt.
We’ve mentioned ‘interest rates’ as lenders set their own rates based on a range of factors, for example the risk of not being paid back on time.
But, as explained above, it's also important for small businesses to keep an eye on the Bank of England base rate.
How businesses can respond to the Bank of England base rate
The wider economy is challenging right now, which means businesses may need to revisit their business plan and pivot their strategy in response.
While what you do will vary depending on the specifics of your trade and business, here are some tips for responding to Bank of England base rate changes:
- check your existing borrowing – it’s worth having a look at your terms and conditions to see how quickly base rate changes might affect your business, speaking to your bank if you’re not sure
- think about plans for future borrowing – if you’re wondering about financing growth, you’ll need to consider what a higher interest rate environment means for those plans – and make changes as necessary
- revisit your cash flow forecast – as well as affecting your own repayments, changes in the broader economy impact consumer behaviour, so you may need to revise your forecast – then you’ll have up-to-date information to influence your strategy
- assess your supply chain – higher interest rates affect all the businesses and clients you work with, so try to spot any problems in advance – for example, could agreeing on contracts before rates rise help fix your own costs for the foreseeable future?
Useful guides for small business owners
How are you responding to rising interest rates and inflation? Let us know in the comments below.
Ready to set up your cover?
As one of the UK's biggest business insurance providers, we specialise in public liability insurance and protect more trades than anybody else. Why not take a look now and build a quick, tailored quote?
Start your quote
Written by
Sam Bromley
Sam has more than 10 years of experience in writing for financial services. He specialises in illuminating complicated topics, from IR35 to ISAs, and identifying emerging trends that audiences want to know about. Sam spent five years at Simply Business, where he was Senior Copywriter.
We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer
Keep up to date with Simply Business. Subscribe to our monthly newsletter and follow us on social media.
Subscribe to our newsletterInsurance
Public liability insuranceBusiness insuranceProfessional indemnity insuranceEmployers liability insuranceLandlord insuranceTradesman insuranceSelf-employed insuranceRestaurant insuranceCommercial van insuranceInsurersAbout
About usOur teamAwardsPress releasesPartners & affiliatesOur charitable workModern Slavery ActSection 172 statementSocial mediaSite mapAddress
6th Floor99 Gresham StreetLondonEC2V 7NG
Sol House29 St Katherine's StreetNorthamptonNN1 2QZ
© Copyright 2023 Simply Business. All Rights Reserved. Simply Business is a trading name of Xbridge Limited which is authorised and regulated by the Financial Conduct Authority (Financial Services Registration No: 313348). Xbridge Limited (No: 3967717) has its registered office at 6th Floor, 99 Gresham Street, London, EC2V 7NG.