Bank Rate rises to 4% as Atradius warns of refinancing squeeze on UK suppliers

UK businesses dependent on overdrafts and variable-rate working-capital facilities face renewed borrowing-cost pressure after the Bank of England raised Bank Rate to 4 per cent, as trade credit insurer Atradius warned that payment difficulties were already emerging across supply chains.

The Monetary Policy Committee voted eight to one on 5 November to increase Bank Rate by 0.25 percentage points from 3.75 per cent. The dissenting member favoured a larger increase to 4.25 per cent.

The decision followed another deterioration in the inflation outlook. UK consumer price inflation reached 3.5 per cent in September, while the Bank now expects it to approach 5 per cent by the middle of 2027, largely because of sustained pressure from energy costs.

For businesses, the impact will depend on how their borrowing arrangements are priced. Facilities linked to floating reference rates can become more expensive as interest rates rise, while fixed-rate borrowers may face the effect later when refinancing existing debt.

Darren Power of Atradius UK said firms already carrying substantial debt or relying heavily on external working-capital finance had less capacity to absorb additional costs.

Construction businesses were particularly exposed because of tight liquidity and elevated financing costs, he said. Retailers funding seasonal stock and capital-intensive manufacturers could also be sensitive to a further increase in borrowing expenses.

The warning follows evidence of pressure on customer payments. It was previously reported that claims received by Atradius from insured UK businesses increased by nearly 13 per cent month on month in September. That figure reflects the insurer’s own claims experience and should not be treated as a market-wide default rate.

Power also warned suppliers to look for changes in customer behaviour before an outright failure, including repeated requests for payment extensions, longer terms and invoices beginning to slip beyond agreed dates.

For receivables financiers, these developments create risks on both sides of a transaction. Higher funding costs may affect the economics of advancing cash against invoices, while slower customer payments can leave receivables outstanding for longer and increase exposure to debtor deterioration.

“A rate rise will not cause every financially stretched business to fail, but it removes another slice of financial headroom at a point when many firms can least afford it,” Power said.

The Bank of England has not committed to a further increase. It said future decisions would depend on whether higher energy costs feed through into more persistent inflation.

The immediate consequence is nevertheless a tighter financing environment for businesses already managing higher operating costs and uncertain customer payment behaviour.