Bank Rate, often called the base rate, is set by the Bank of England’s Monetary Policy Committee at scheduled meetings through the year. Every decision makes headlines, and business owners reasonably want to know what it means for them. The honest answer is that it depends on the type of borrowing you have, how it is priced and when it was agreed.
Variable rate borrowing
Many overdrafts, revolving facilities and some term loans have a variable rate, often expressed as a margin above Bank Rate or another reference rate. When the reference rate changes, the interest you pay usually follows within a short period. A rise increases your monthly cost and a cut reduces it, while the lender’s margin stays the same unless the agreement says otherwise.
If you have variable borrowing, check your agreement to see which reference rate it uses and how quickly changes take effect. It is also worth working out what your repayments would look like if rates moved up or down, so a change doesn’t come as a surprise.
Fixed rate borrowing
With a fixed rate loan, the rate is agreed at the start and stays the same for the agreed term. Many unsecured business loans and most asset finance agreements work this way. A change in Bank Rate won’t alter what you pay on an existing fixed agreement, which makes budgeting simpler. The trade-off is that you won’t benefit if rates fall, and leaving early can involve early repayment charges.
New borrowing
For new loans, the link with Bank Rate is less direct than many people expect. Lenders price according to their own cost of funds, their appetite for a particular sector and the risk they see in your business. A small move in Bank Rate can be outweighed by those factors, so a strong application may matter more to the price you are offered than the timing of a rate decision.
Expectations matter too. Fixed rates on new lending often reflect where markets think rates are heading, not only where they are today. That is one reason why waiting for a cut before borrowing doesn’t always lead to a cheaper deal.
Planning when rates may move
- Decide how much certainty you need. If a rise would cause real strain, a fixed rate may be worth paying for.
- Stress test your cash flow forecast with higher repayments on any variable borrowing.
- Match the term to the purpose. Short-term needs suit flexible facilities, while long-term investments often suit fixed terms.
- Look at the whole cost, including fees and early repayment charges, not just the headline rate.
- Review existing borrowing when rates have moved significantly. Refinancing can sometimes help, but check exit costs first.
Where to check the current rate
Rates change, and anything written about a specific level goes out of date quickly. The Bank of England publishes the current Bank Rate and its schedule of upcoming decisions on its website. For the rate on a particular loan, always rely on the terms in the lender’s offer rather than headlines or general figures.
This article is general information, not financial advice. Loanleaf is an introduction service, not a lender or broker, and is not authorised by the FCA.
