What business groups are saying

Different business groups have voiced different opinions about this increase. While some have cautioned that life will be harder for small firms, some have pointed out that this could turn out to be an ‘insurance policy’ against expected inflationary pressure due to the war in Middle East. 

The last time rates climbed

Bank Rate rose in fourteen steps between December 2021 and August 2023, from 0.1% to 5.25%. Inflation peaked at 11.1% in October 2022, according to the Office for National Statistics. Many businesses with variable-rate debt saw monthly costs climb while input prices were also rising. Firms that had mapped their exposure and kept some headroom generally had more choices than those that found out from their lender's letter. Today's rise is far smaller, but the lesson about preparation holds.

Five ways to protect cash flow

1. Know your exposure

List every facility you have, whether the rate is fixed or variable, the margin over base rate and the date it can change. For a £150,000 variable facility, each quarter-point adds about £375 of interest a year.

2. Stress-test your forecast

Rebuild your cash-flow forecast with repayments half a point and a full point higher, and with energy and fuel costs above today's level. Holmes advised making sure any finance stays affordable if rates rise again. If the forecast only works at today's rate, talk to your lender or adviser early.

3. Bring cash in faster

Late payment is a cash-flow cost in its own right. Invoice promptly, state terms clearly, follow up before the due date and keep records of chasing. Under the Late Payment of Commercial Debts (Interest) Act 1998, suppliers already have a right to claim statutory interest and fixed compensation on overdue business debts, unless the contract provides a substantial alternative remedy. Reforms in the Commercial Payments Bill, which is still before Parliament, would tighten the rules further. Invoice finance can release cash tied up in unpaid invoices, but it carries fees and its terms vary, so compare the full cost.

4. Review your funding mix

Overdrafts, term loans, asset finance and invoice finance behave differently when rates move. Chatha recommended reviewing the mix of funding, and for businesses trading overseas, treating currency management as part of cash-flow planning. Compare total cost, fees, security and flexibility, not only the headline rate. Government-backed lending support, such as the British Business Bank's Growth Guarantee Scheme, may suit some businesses, so check current terms on the British Business Bank website.

5. Keep investing selectively and review idle cash

Holmes warned against putting all investment on hold, since that can weaken a business's position when conditions improve. Prioritise spending that raises revenue or cuts costs, and phase the rest. Katie Horne of Flagstone suggested reviewing business savings accounts regularly instead of leaving reserves untouched, because rates on deposits move too.

When to talk to an adviser

Speak to an adviser early if repayments take up a growing share of income, if you rely heavily on an overdraft, if a fixed period ends in the next year, or if you plan a larger purchase. Lenders look at affordability, trading history and cash flow. Preparing recent accounts and a realistic forecast makes any conversation more productive.

Frequently asked questions

Will a quarter-point rise really matter?

For many firms the effect is modest on its own, but it adds to energy, wage and supplier costs, and further rises are possible according to the Bank and the CBI.

Is it better to fix or stay variable?

There is no single answer. Fixing adds certainty but may cost more and may carry early repayment charges. Compare both against your forecast.

Can a broker guarantee me finance?

No. Any finance is subject to status and lender approval.