Interest Rates May Not Be Coming Down Soon: What UK Businesses Should Consider

Businesses waiting for cheaper borrowing may need to reconsider their plans.

The Bank of England kept Bank Rate at 3.75% in September 2026, but three members of the Monetary Policy Committee (MPC) voted for an immediate increase to 4%.

The concern remains inflation. UK inflation is above the Bank’s 2% target, while higher energy costs are creating additional pressure. If those costs continue feeding through into wages, prices and business expenses, UK interest rates could remain higher for longer.

For businesses, the important question is therefore not simply, “When will interest rates fall?” It is whether borrowing, investment and refinancing plans still work if rates remain at current levels or rise further.

Why Are UK Interest Rates Staying Higher?

The Bank of England sets Bank Rate with the aim of bringing inflation sustainably back to its 2% target.

Higher energy costs can make that more difficult because they affect both households and businesses. Companies may face increased transport, manufacturing, electricity and supply-chain costs, some of which can eventually feed into prices.

This creates uncertainty over how quickly the Bank of England can reduce interest rates.

Businesses making financial decisions should therefore avoid building forecasts around the assumption that borrowing costs will fall quickly.

What Do Higher Interest Rates Mean for Businesses?

Higher interest rates can affect a business in several ways.

They can increase the cost of:

• business loans;
• commercial mortgages;
• overdrafts;
• asset finance;
• refinancing existing debt; and
• funding new investment.

The impact can extend beyond the monthly finance payment.

Higher borrowing costs can reduce profit margins, put pressure on cash flow and change whether a planned investment produces an acceptable return.

This is particularly important for businesses operating with tight margins or significant existing debt.

Stress-Test Business Plans Against Different Interest Rates

Instead of trying to predict exactly what the Bank of England will do next, businesses can model several possible scenarios.

For example, a business considering new finance could prepare three forecasts:

Scenario 1: Interest Rates Remain Broadly Unchanged

Calculate whether the project or investment remains affordable if borrowing costs stay close to current levels.

Scenario 2: Interest Rates Increase

Model the effect of a modest increase in borrowing costs.

This can show whether the business has enough financial headroom to absorb higher repayments without putting unnecessary pressure on cash flow.

Scenario 3: Interest Rates Eventually Fall

A lower-rate scenario can show the potential upside if borrowing becomes cheaper.

However, this should ideally be treated as one possible outcome rather than the assumption on which the entire investment decision depends.

How Interest Rates Can Change an Investment Decision

A project that appears comfortably affordable if borrowing costs fall may look very different if rates remain unchanged.

For example, suppose a business is considering borrowing to purchase equipment, open another location or invest in technology.

The business should consider:

• the monthly finance cost;
• expected additional revenue;
• expected return on investment;
• available cash reserves;
• the effect of higher repayments;
• the break-even point; and
• whether the investment remains viable if revenue is lower than forecast.

If the investment only works when interest rates fall substantially, that may indicate there is very little financial headroom.

On the other hand, an investment that still produces an acceptable return under a higher-interest-rate scenario may be commercially viable without waiting indefinitely for cheaper borrowing.

Review Existing Business Borrowing

The same approach should be applied to existing debt.

Businesses with fixed-rate borrowing approaching renewal should understand what refinancing might cost before the current deal expires.

A higher refinancing rate could increase monthly repayments and reduce future cash available for:

• wages;
• tax payments;
• stock;
• marketing;
• investment; and
• working capital.

Businesses using variable-rate loans or overdrafts should also monitor finance costs because increases can gradually erode margins and cash flow.

Reviewing borrowing early provides more time to assess alternatives rather than making financing decisions under pressure.

Should Businesses Wait for Interest Rates to Fall Before Investing?

Not necessarily.

Waiting may make sense where financing costs would make an investment unaffordable or expose the business to excessive risk.

But postponing every investment until interest rates fall can create a different risk, particularly if the business delays expansion, productivity improvements or essential equipment.

The better question is:

Does the investment still make financial sense under a realistic range of interest-rate assumptions?

A decision based on several scenarios is generally more useful than one based entirely on predicting the next Bank of England rate decision.

What Should Businesses Review Now?

Businesses concerned about borrowing costs should consider reviewing:

• existing loan interest rates;
• fixed-rate expiry dates;
• variable-rate borrowing;
• overdraft usage;
• monthly debt repayments;
• upcoming refinancing requirements;
• cash-flow forecasts;
• planned capital expenditure; and
• the return expected from new investment.

The objective is to understand how sensitive the business is to changes in borrowing costs before those changes create a cash-flow problem.

CASE STUDY: Stress-Testing a Wimbledon Business Investment Against Higher Interest Rates

A growing business approached our CIGMA Accounting Farringdon office while considering a major equipment purchase funded partly through borrowing. Management had expected UK interest rates to fall during 2026 and had initially built its investment forecast around cheaper finance becoming available.

With Bank Rate remaining at 3.75% in September 2026 and uncertainty over how quickly borrowing costs might fall, the directors wanted to understand whether the investment still made financial sense under less favourable conditions.

CIGMA Accounting reviewed the proposed borrowing, expected monthly repayments, projected additional revenue and the company’s existing cash-flow commitments. Rather than relying on one interest-rate assumption, we prepared several scenarios showing the impact if borrowing costs remained broadly unchanged, increased further or eventually declined.

The review showed that the project remained profitable at the current borrowing cost, but a higher-rate scenario significantly reduced the company’s cash-flow headroom during the first year. We therefore helped management reconsider the borrowing amount, repayment period and timing of other planned expenditure.

We also reviewed the company’s existing finance arrangements and identified a fixed-rate facility approaching renewal, allowing the directors to incorporate potential refinancing costs into their forecasts rather than dealing with them later.

The business proceeded with a clearer understanding of how higher interest rates could affect repayments, profitability and working capital.

The client left with a clearer understanding of their position, options, and next steps.