The Bank of England decides on rates next Thursday, 5 November. Bank Rate is 3.75%, three of the nine committee members already voted to raise it in September, and markets see a rise to 4% as very likely. Some economists expect another in February. My view: a quarter point won’t sink anyone, but it’s a clear warning. Anything you borrow from here should be on a fixed rate.
Look at the actual cost first. On a £50,000 variable-rate loan, a quarter-point rise adds about £125 a year. That’s annoying, not fatal. The bigger risk is that it’s the start of a run, and that variable-rate debt keeps getting dearer while you’re busy running the business.
So spend ten minutes sorting your borrowing into two piles. Hire purchase and most leases are usually fixed for the whole term, so those are fine. Overdrafts, credit cards and many business loans track Bank Rate, so those will move. As a sole trader, any of that debt is yours personally. As a limited company director, check whether you’ve signed a personal guarantee, because that makes it yours too.
If you’re about to borrow, ask for a fixed rate now. Lenders price fixed deals on where they think rates are heading, so waiting until after the announcement usually means a worse quote. And run the test from Don’t Borrow to Stand Still: add two points and see if you could still pay out of a bad month.
How much of your borrowing would move if rates went up next week?