Small businesses may need to plan for borrowing costs staying higher for longer, after the Bank of England’s chief economist said interest rates may need to rise again this year to keep inflation under control.
Huw Pill, a member of the Bank’s Monetary Policy Committee, told the BBC that the UK economy’s “speed limit” may be lower than in the past. He pointed to weaker productivity and persistent inflation pressure as reasons why policy may need to stay tight.
The comments matter because the Bank Rate feeds through into the cost of many business loans, overdrafts, credit cards, asset finance agreements and mortgage-linked premises costs. Even firms that do not borrow directly can feel the effect through customer demand, supplier pricing and wage pressure.
What happened
At its June meeting, the Monetary Policy Committee voted 7-2 to hold Bank Rate at 3.75%. Two members voted for a 0.25 percentage point rise to 4%.
The Bank’s published minutes said CPI inflation had fallen to 2.8%, but was expected to rise later in the year as higher energy prices continued to pass through the economy. The committee also noted that energy prices remain volatile and that the impact on the UK economy is still uncertain.
Pill was one of the minority members who voted for a rise in June. In the BBC interview, he said inflation had been at or below the Bank’s 2% target for only three months during his time at the Bank, and above target for 53 months.
For SMEs, the key point is not that a rate rise is guaranteed. It is that the next few months may remain uncertain, and firms should avoid assuming that cheaper borrowing will arrive quickly.
Why it matters for SMEs
Higher or more persistent interest rates can affect small firms in several practical ways.
First, variable-rate borrowing can become more expensive. That includes overdrafts, revolving credit facilities and some commercial loans. Firms with refinancing dates coming up may also face a different market from the one they expected at the start of the year.
Second, customers may become more cautious. If households are paying more on mortgages, rent, energy or credit, they may cut discretionary spending. This is especially important for hospitality, retail, leisure, trades and local services.
Third, supplier costs can remain unsettled. The Bank’s minutes highlighted energy-price volatility. Many small firms cannot absorb repeated increases without reviewing prices, contracts or stock decisions.
Fourth, wage and recruitment planning may become harder. If inflation pressure persists, employees may need higher pay to manage living costs, while employers may have less room to increase wages if borrowing and input costs are also rising.
What to check now
Owners do not need to make dramatic changes because of one interview. But this is a good moment to stress-test the next quarter.
Start with debt. List any borrowing that is variable rate, due for renewal, or dependent on an overdraft facility. Check what a 0.25 or 0.5 percentage point increase would mean in monthly cash terms. If the number is material, speak to lenders early rather than waiting until a renewal deadline.
Then look at cash flow. Re-run forecasts using cautious assumptions for sales, energy, rent, insurance and wage costs. If cash gets tight in the model, decide which actions would be taken first: chasing invoices faster, trimming stock, delaying non-essential spend, renegotiating supplier terms or changing payment options.
Pricing also needs attention. Firms that have avoided price increases may need to check whether margins still work. A small, clear price adjustment can be easier to explain than waiting until costs force a sharper move.
Finally, review customer demand. Businesses selling discretionary products or services should watch booking levels, repeat orders, basket sizes and cancellation rates closely. A weaker pattern is easier to manage when it is spotted early.
What to watch next
The Bank of England’s next scheduled rate decision is due on 30 July. Between now and then, small firms should watch inflation data, energy-price movements and any signal from the Bank about whether policymakers are more worried about persistent inflation or a weakening economy.
The useful response is preparation, not panic. A rate rise may not happen, but firms with clear cash-flow forecasts, realistic pricing and early lender conversations will be in a stronger position if borrowing costs do move again.
Sources: BBC News; Bank of England June 2026 Monetary Policy Summary and minutes.
