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Base Rate Held at 3.75%: The Impact on Businesses [February 2026]
The Bank of England has held the base rate at 3.75%, and we explain what this means for your business.
In December 2025, the Bank of England reduced the base rate to 3.75% in August, as part of an intentional strategy to reduce interest rates and tackle inflation. Rate setters have now decided to hold the rate steady in the early months of 2026, which was expected by many financial analysis and economists as consecutive rate drops are very rare.
With the base rate held at 3.75%, businesses can expect borrowing costs to also remain steady. This could support investment in expansion, equipment, and recruitment, though the benefits may be moderated by cost pressures introduced in the Autumn Budget 2025.
Measures such as frozen income tax and NI thresholds, a new salary sacrifice cap, and changes to VAT and corporation tax create additional financial pressures for many companies.
At the same time, the Budget also introduced targeted support and growth opportunities, including permanent Retail, Hospitality & Leisure (RHL) business rates relief, incentives for EV forecourts, enhanced investment allowances, and expanded venture capital schemes.
Navigating this mixed environment requires careful financial planning, balancing potential cost savings from lower interest rates with increased operational and compliance costs.
How Does the Bank of England Impact Business Loan Interest Rates?
Interest rates play a vital role in the economy, affecting both individuals and businesses. They represent the cost of borrowing money and the return on savings, typically expressed as an annual percentage of the total amount.
This is why it’s always cheaper to use existing capital rather than borrowing. However, it's not always possible (or practical) for businesses to rely on cash reserves.
The Bank of England’s base rate is the UK’s key benchmark for interest rates across the UK, influencing the interest rates banks charge on loans and offer on savings. It's set by the Monetary Policy Committee, and is primarily used to keep inflation around the government’s 2% target.
While changes to the base rate impact borrowing and saving costs, lenders will adjust rates based on their operational needs. After all, a bank itself is still a business with running costs to cover.
A lower base rate reduces borrowing costs, boosts asset values, and encourages spending by making saving less attractive. Conversely, higher rates make borrowing more expensive, limiting consumer spending and increasing business costs.
For businesses, interest rates directly affect cash flow and investment decisions. High rates can increase fixed costs like wages and supplies while reducing consumer demand, making it harder to remain competitive.
The cost of business loans also varies depending on the type of financing available, influencing expansion and operational strategies.
How Consumer Spending Affects Business Revenue
Lower interest rates typically lead to increased consumer spending, as individuals find it more affordable to borrow and have more disposable income because of this. and the opposite is also true.
Now that the cost of borrowing is more affordable, business funding may be cheaper to access, and consumers are likely to spend more as they are less incentivised to hold money in savings accounts.
This could provide a boost to businesses reliant on consumer demand, such as retail, hospitality, and property. Last year, consumer confidence wavered. So, this reduction in borrowing costs could help stabilise spending patterns and support revenue growth, just as long as inflation remained under control.
Despite the rate cut, businesses could still face broader economic headwinds. The UK’s sluggish growth, political uncertainty across the globe, and the prospect of new trade restrictions under Trump's administration are all affecting market confidence.
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