What does the Bank of England base rate mean for a small business?

Many owners first notice Bank Rate when a lender writes to them. A loan that costs 7.75% this quarter can cost 8% the next, and nobody at the business made a decision. The rate sits behind borrowing costs, the interest on cash in the bank, the penalty for paying a bill late and what a customer owes you when they do the same.

This page covers the rate as it affects a limited company. It has the current figure, the dates of the next decisions, and a worked example for each place the rate shows up. Every rate and date is taken from the Bank of England, GOV.UK or HMRC. The pound figures are arithmetic on those rates and are illustrations.

What is the Bank of England base rate?

Bank Rate is the interest rate the Bank of England pays to commercial banks that hold money with it. It is also the rate the Bank charges on loans it makes to them. Banks use it as the starting point when they price what they lend and what they pay on deposits. Bank Rate is often called the base rate.

The Bank's Monetary Policy Committee sets the rate. It has nine members and meets eight times a year. Its job is to bring inflation to 2% and keep it there. Bank Rate is 3.75% now. It was 0.50% in February 2022 and rose to 5.25% by August 2023. It then stayed at 5.25% for a year before the cuts began.

The plus 4 points is an assumption made to show the sums. Your lender's margin is in your loan agreement. Interest is shown for a loan where the full £100,000 stays outstanding for the year.

Why does the Bank of England change Bank Rate?

The Bank raises the rate when prices are rising too fast. Dearer borrowing slows spending, and slower spending takes pressure off prices. The Bank lowers the rate when inflation is low or the economy is weak, because cheaper borrowing encourages spending.

Inflation was 3.1% in August 2026. The Bank says energy prices have risen sharply since July and that inflation is likely to rise further over the coming quarters. It says inflation could reach slightly over 4% in early 2027.

That is the background to the September decision. Six members voted to hold Bank Rate at 3.75%. Three voted to raise it to 4%. Their reasons included that waiting for firm evidence of knock-on price rises would leave the Bank behind events. The majority held. The Bank says it stands ready to act as needed. Nobody outside the Committee can say which way the next vote will go.

How does Bank Rate reach a small business?

The route depends on how each product is priced. Look in the agreement for the words "base rate", "Bank Rate" or "margin". They tell you whether the rate follows the Bank.

What does a Bank Rate change do to a business loan?

On a tracker loan the lender adds its margin to Bank Rate. When Bank Rate moves by 0.25 points, the rate on the loan moves by 0.25 points. The loan has no say in it. The example shows what that means on £100,000 if the three members who wanted 4% had won the vote.

The same quarter-point move costs more on a bigger loan. The table also shows a full point.

The table shows interest on the full amount for a year. On a loan that you repay in instalments the balance falls, so the real change is smaller. Interest paid on a business loan is normally a tax-deductible expense, so the cost after corporation tax is lower than the figures shown.

A fixed-rate loan has a different risk. Nothing changes during the fixed period. When it ends the lender prices the loan again at whatever the market rate is then. A business with a fixed deal ending in the next year is exposed to today's rates even though it is not on a tracker. Ask your lender about early repayment charges before you decide to move sooner.

What does it mean for money the company holds?

A bank sets the rate it pays on a company deposit. Bank Rate influences that choice but does not fix it, so a change at the Bank may reach your account in full, in part or not at all. Check what your account pays instead of assuming. On £50,000 a 0.25 point difference is £125 a year before tax.

Interest a company earns counts as part of its profit and is charged to corporation tax at 19% to 25%. At the main rate of 25%, that £125 leaves £93.75 once the company has paid its £31.25.

The Financial Services Compensation Scheme protects company deposits too. The limit is £120,000 for each eligible depositor with each authorised bank, building society or credit union. It rose from £85,000 on 1 December 2025 and applies to firms that fail from that date. The scheme generally covers companies whatever their size. A company holding more than £120,000 with a single authorised firm has money above the limit that the scheme does not cover.

What interest can you charge a customer who pays late?

The law gives a business the right to charge interest when another business pays a commercial debt late. The statutory rate is 8% above Bank Rate. The rate is fixed twice a year. The Bank Rate in force on 30 June sets the rate for 1 July to 31 December. The Bank Rate in force on 31 December sets the rate for 1 January to 30 June.

Bank Rate was 3.75% on 30 June 2026. The statutory rate is therefore 11.75% a year until 31 December 2026. You can also claim a fixed sum for the cost of chasing. It is £40 on a debt under £1,000, £70 on a debt from £1,000 to £9,999.99 and £100 on a debt of £10,000 or more. You can charge it once for each late payment.

Daily interest uses a 365-day year and is rounded to the nearest penny.

The 17 December decision matters here. The Bank Rate in force on 31 December 2026 sets the statutory rate for the first half of 2027. If the Bank moves in December, the rate you can charge moves with it from 1 January.

The rules apply to debts between businesses. Say on your invoices and in your terms that you will charge interest. That puts the cost in front of the customer before any argument starts.

What does HMRC charge when tax is paid late?

HMRC's rates are tied to Bank Rate too. Interest on tax paid late is Bank Rate plus 4 points. That rate was Bank Rate plus 2.5 points until 5 April 2025 and has been plus 4 since 6 April 2025. With Bank Rate at 3.75% the late payment rate is 7.75%. That has applied since 9 January 2026.

HMRC pays interest on tax you have overpaid at Bank Rate minus 1 point, which is 2.75% today. The repayment rate has a floor of 0.5%. The gap between what HMRC charges and what it pays is five points. A company that pays a corporation tax bill late pays 7.75% a year on the overdue amount.

The Labour tax changes article sets out the other rates that moved for owner-managed companies, and the Budget on 28 October could move more of them.

What dates should you know?

These are the next dates that set a rate you pay or receive.

1. 28 October 2026 The Autumn Budget. It does not set Bank Rate. It can change business taxes.
2. 5 November 2026 Bank of England announcement. Bank Rate is 3.75% going in.
3. 17 December 2026 Bank of England announcement.
4. 31 December 2026 The Bank Rate in force on this day sets the statutory late payment rate for 1 January to 30 June 2027.
5. 4 February 2027 First Bank of England announcement of 2027.

What should an owner ask about interest rates?

You cannot predict the Bank's next move. You can find out how much of your business is exposed to it. Put these five questions to your lender, broker or accountant.

1. Is each of our loans fixed, a tracker or a rate the lender sets as it likes? The agreement tells you. A rate the lender can change at its discretion can rise when Bank Rate does not.
2. What is our margin over Bank Rate, and can it change? Two loans at the same Bank Rate can cost very different amounts because of the margin.
3. When does each fixed deal end, and what happens to the rate then? Find the date now, so the renewal is a decision and not a surprise.
4. What would a one point rise cost us a year? It is £1,000 a year for each £100,000 on a tracker. Add up every loan that follows Bank Rate.
5. Do our terms say we will charge interest on late invoices? The right exists by law. Your terms are where you tell customers you will use it.

Borrowing cost is one side of profit. The other side is the money coming in. You can see how similar businesses near you are doing with our free competitor report, and the Grow profit page covers how to bring in more and keep what you win. The IQ Money calculators let you put your own loan into the sums.

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