Lee Murphy, managing director at The Accountancy Partnership, explains what this means for the UK’s 5.6 million SMEs: “Interest rates have reached their highest level since December 2008 and this could spell trouble for millions of businesses that rely on credit to run their organisations.

“Tough trading conditions have continued since the start of the pandemic, two and a half years ago, with many still in debt due to the effects of Covid on their business. The increase in business alongside high levels of inflation and supply chain issues will squeeze profit margins even further.

“What were once lifeline loans are now going to be hit with more interest, making them more expensive to pay off. Combined with inflation which is pushing up prices of fuel and other goods, the cost of business may become too much for some small businesses. Not only is this problematic for the future of businesses themselves, but also for business owners, 83% of whom already say that they worry about their financial situation according to The Accountancy Partnership’s research into SME owners’ mental health.

“Small businesses should review their business plans to ensure they are resilient in the current climate, prepared for eventualities, aware of cash flow and aware of the risks of borrowing in a high-interest environment.

“Loans already taken out should be on fixed interest rate so will not be impacted, however new lending on vehicles, machinery and commercial property are set to be at much higher rates.

“SMEs are the fabric of British business, and while there are steps businesses themselves can take to weather these high-interest times, the most impactful support must come from the government. Failure to support small businesses will lead to increased insolvencies, spelling trouble for the country’s economy and the wellbeing of entrepreneurs.”