Interest Rates Have Dropped — That Doesn’t Mean You’re Safe

Costs are still climbing. Don’t let a 0.25% headline distract you from the real pressure.

The Bank of England’s base rate has just dropped to 4.25%.
Cue the headlines: “Relief for businesses!” “End of the squeeze!” “Borrowing just got cheaper!”

Let me be clear:
This changes very little for most small businesses.
And if you mistake a falling interest rate for a recovery, you might take your eye off the real risks.

The Myth of the Magical Rate Cut

A 0.25% drop in base rate:

• Might knock £12/month off your variable-rate loan
• Won’t shift your energy bill
• Won’t reduce your PAYE costs
• Won’t stop your supplier from raising prices next month

So yes, rates have dipped. But don’t mistake motion for progress.

What’s Actually Happening?

While the base rate drops:

• Water bills are up 26%
• Gas and electricity costs remain well above 2020 levels
• Employer NICs have quietly increased
• Materials and shipping are still volatile

In plain English?
Everything still costs more. Your bank just shaved a sliver off one side of the ledger.

And even that assumes your borrowing is flexible enough to benefit — which, in reality, it probably isn’t.

So What Should You Do Now?

1. Review your borrowing — but don’t rush to refinance.
   Some lenders will pass on the cut. Others won’t. Check the terms before you assume anything.
2. Watch your overheads like a hawk.
   One utility bill can wipe out the savings of a 0.25% rate cut in seconds.
3. Cashflow > Cost of borrowing.
   If your cashflow’s tight, a lower rate helps — but not as much as a tighter grip on your working capital.
4. Don’t get distracted.
   This is the kind of announcement that makes you feel good for an hour — and forget that your wages bill is up 6% year-on-year.

How Are Other Businesses Responding?

Around Greater Manchester, I’m seeing a split:

• Some businesses are using this moment to refinance — lock in better rates, consolidate debt, renegotiate terms.
• Others are cutting costs instead — focusing on efficiency, automation, and simpler operating models.

Both approaches are valid. But what doesn’t work is doing nothing, assuming the worst is over.

My View

Interest rate changes make great headlines.
But for the average small business owner — especially those in tight-margin trades — it’s the cumulative weight of everything else that’s breaking your back.

This isn’t about one number. It’s about your model. Your prices. Your costs. Your discipline.

If this tiny drop gives you breathing room — great. Use it wisely.
If not — you’re not alone. But don’t kid yourself into thinking relief has arrived.

Final Word

Rate cuts don’t pay invoices. They don’t cover rent. They don’t fix poor systems.
They’re a lever. Not a lifeline.

You still need to steer.