The Bank of England has kept the Bank Rate at 4%, the lowest level since February/March 2023.

This decision was widely expected given the current mix of inflation pressures, slow growth and economic uncertainty.

Here’s what this means, in practical terms, for the UK economy, and for you if you run a business.

What this means for the wider economy

  1. Inflation still above target, but falling pressure The UK inflation rate is running at around 3.8%, well above the Bank of England’s 2% target. The Bank has cut rates several times in the last year (from a peak of 5.25%) because inflation has eased from more extreme levels
  2. Slow growth, risk of stagnation Economic growth has been weak and somewhat fragile. Consumer spending is under pressure (from inflation and cost of living), business investment is cautious, and wage growth is decelerating.
  3. Monetary policy balancing act The Bank’s job is to juggle two things: keeping inflation under control and not strangling growth. With inflation still above target, it’s cautious about cutting rates too fast. But with weak growth, it also wants to avoid choking off business and consumer sentiment.
  4. Interest rates likely to fall gradually The Bank has signalled that future rate cuts are possible but any cuts will be gradual and careful.

What this means for business owners

Here are the five areas most likely to affect your business and what you can do about them:

ImpactWhat to expectWhat you can do
Borrowing costsLoans, mortgages, or overdrafts will be somewhat more affordable than during peak rates, but still expensive compared to pre-pandemic or “low interest” eras. Fixed-rate borrowing or longer-term agreements may still carry high premiums.Shop for favourable terms; consider locking in fixed rates if you expect rates to drift up or remain steady. Be cautious about taking on too much debt unless the return on investment is clear.
Investment decisionsBecause borrowing is still not “cheap,” businesses may defer big capital spending, expansion or hiring unless demand is solid. Risk-averse investors or boards may hold back.Prioritise investments with high ROI or ones that reduce costs (automation, efficiency). Maybe stagger investment spending rather than all at once.
Cash flow & marginsRising input costs (energy, labour, supplies) are still a concern. With inflation above 3%, you may face higher costs before you can adjust prices. Meanwhile, your customers (both business and consumer) are also cost-sensitive.Keep close tabs on cost inflation; renegotiate supply contracts; possibly pass on costs where the market allows; consider tighter budgeting. Maintain some buffer in cash reserves.
Savings & financing leverageHolding some cash may now offer moderate returns (though not huge), as interest rates on savings/investments might be higher than before. But borrowing remains expensive.Use cash wisely; avoid over-leveraging; consider hedging interest rate risk if you have floating-rate debt.
Pricing & wage pressureWith inflation above target, employees may demand higher wages; labour costs are rising. But raising prices too much risks losing customers.Be realistic in negotiations; consider productivity improvements to absorb cost rises; communicate clearly with customers if price adjustments are needed.

Key risks to keep an eye on

  • Inflation spikes from energy, food, or supply shocks
  • Weaker consumer demand as households adjust spending
  • Credit remaining tight, slowing investment
  • Labour market shifts affecting wage growth and consumer confidence

How to be proactive

To navigate the current environment effectively, business owners should focus on practical steps:

  • Scenario Planning – Test different possibilities: faster rate cuts, inflation spikes, or weaker consumer demand. Knowing the risks helps you make informed decisions.

  • Cash Flow Forecasting – Keep forecasts up to date and model worst-case scenarios so you’re prepared for unexpected changes.

  • Debt Structure Review – Review borrowing arrangements. Could refinancing, extending terms, or fixing rates reduce risk?

  • Cost & Efficiency Opportunities – Identify high-impact, low-cost improvements to protect margins and improve resilience.

  • Tax & Investment Planning – Ensure current or planned investments provide tax efficiencies or support cash flow.

  • Stay Aware of Funding & Grants – Keep track of government schemes, grants, or incentives, especially for green technology, automation, or innovation projects.

Book a free consultation

Holding rates at 4% is a compromise: it keeps inflation in check while recognising that the economy isn’t firing on all cylinders.

For business owners, this means the environment is less hostile than during peak rates, but still challenging. Now is the time to be proactive: manage costs carefully, safeguard cash flow, and make considered investment decisions.

If you’d like guidance on reviewing cash flow, borrowing, or investment plans, our advisors can help you stress-test your numbers and plan confidently for the months ahead.

Get in touch with us today to start a conversation.

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