Blog | by Josh Clarke | September 2026
What Rising Interest Rates Mean for Your Business Borrowing
Josh Clarke
For most of the last two years, the question on every business owner's mind has been how soon interest rates would fall further. That question has quietly flipped. Financial markets are now pricing in the possibility of Bank Rates rising rather than falling, and while nothing has been decided yet, it's a shift worth understanding before it shows up in a loan quote.
Why are markets suddenly betting on rate rises instead of cuts?
The Bank of England's Monetary Policy Committee held Bank Rate at 3.75% at its last decision on 30 July 2026, with the next decision due on 17 September. Inflation stood at 2.6% at that point, and the Bank itself flagged that it expects inflation to rise later in the year because of elevated energy prices linked to the conflict in the Middle East. Markets have taken that signal further than the Bank has said out loud: some analysts are now pricing in as many as three increases, which would take Bank Rate from 3.75% up towards 4.5%.
A large part of this is actually about the Budget rather than inflation on its own. Gilt yields, the interest rate the government pays to borrow, have risen enough to eat into the Chancellor's fiscal headroom, reportedly cutting it from around £22.7 billion down towards £13 billion. Higher gilt yields tend to pull other borrowing costs up with them, since lenders price loans off the same underlying market, and that's feeding through well before the Autumn Budget on 28 October actually happens.
Does this actually change what my business pays today?
Not yet, and that's the important distinction. Nothing has changed at the Bank of England itself since July, so if you're on a variable business loan or an overdraft, your rate hasn't moved and won't move until the Bank actually makes a decision on 17 September or afterwards. What has changed is the price of anything new you go looking for. The additional rate threshold has fared even worse. It stood at £150,000 from its introduction in 2010/11 right through to April 2023, when the Autumn Statement 2022 cut it, rather than simply freezing it, to £125,140. That single change dragged a much wider band of higher earners into the 45% additional rate, and the reduced threshold has itself been frozen since.
What's different about a new fixed-rate loan versus your existing variable one?
Consumer prices have risen substantially since these thresholds were last set. Using the Office for National Statistics' CPI all-items index, prices rose by roughly 29.8% between April 2021, when the personal allowance and higher rate threshold were last increased, and July 2026, the most recent reading available at the time of writing (the index moved from 110.1 to 142.9 over that period). Had the thresholds simply been uprated in line with that inflation, rather than frozen, the numbers would look very different today.
| Borrowing type | What moves the rate | When it moves |
|---|---|---|
| Variable loan or overdraft | Bank Rate decisions | Only after the Bank actually changes Bank Rate |
| New fixed-rate loan or renewal | Swap rates and gilt yields | Already moving, ahead of any Bank decision |
| Commercial mortgage due for renewal | Swap rates at the point you lock in | As soon as you request a new quote |
How should this feed into your cashflow forecast?
If you've got borrowing due for renewal in the next few months, it's worth getting a comparison quote sooner rather than later instead of assuming today's indicative rate will still be available when you come back to it. It's also worth building a slightly more cautious interest cost assumption into your autumn cashflow forecast, in the same way we've suggested doing with energy costs, since both are volatile lines that tend to move around the same time of year and can compound each other if you only stress-test one at a time. Our recent guide on the October energy price cap rise covers the same kind of forecasting discipline in more detail.
Related reading: https://loveyouraccountants.com/knowledge/energy-price-cap-rise-business-2026
Frequently asked questions
Has the Bank of England actually raised interest rates yet?
No. Bank Rate remains at 3.75% following the hold decided on 30 July 2026. The next scheduled decision is 17 September 2026. What's changed is market expectation, not the rate itself.
Why would gilt yields affect my business loan?
Lenders don't only look at Bank Rate when pricing a fixed loan. They also look at the market cost of government borrowing, since that's a close proxy for their own funding costs. When gilt yields rise, fixed lending quotes tend to follow, even before the Bank of England changes anything itself.
Should I fix my borrowing now or wait?
There's no single right answer, since it depends on your appetite for risk and how much of your existing borrowing is already fixed. What's worth doing either way is getting a genuine comparison quote before any existing fixed deal expires, rather than after, so you're deciding from real numbers instead of a guess.
Need help?
If you'd like a second pair of eyes on your borrowing costs or your autumn cashflow forecast, the LYA team is happy to help. Email support.london@loveyouraccountants.com or call 01372 374143, or book a free consultation to get started.
Book a free consultation: https://loveyouraccountants.com/contact.
Sources
Interest rates and Bank Rate: our latest decision: https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate
What is happening with interest rates in the UK?: https://www.bankofengland.co.uk/explainers/current-interest-rate
UK Business News Today: 3 September 2026: https://cpa.co.uk/uk-business-news-today-3-september-2026-economy-markets-insolvencies/
Author
Josh Clarke
Josh is our Chief Operating Officer, overseeing operations to ensure a smooth, responsive and high-quality service. With a practical, clear approach...
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