Iran war increases borrowing costs for UK small businesses

The ongoing war in Iran is driving up borrowing costs for small and medium enterprises (SMEs) in the United Kingdom. Mark Barrie, Head of Debt Advisory at accountancy firm Azets, warns that the conflict may lead to unexpected interest rate hikes, potentially causing business failures and curbing investment.

Previously, expectations suggested the Bank of England would begin reducing base rates by 2026. However, current economic projections suggest there may be one or two rate increases instead of the anticipated reductions. This shift has resulted in a reduced appetite for debt and fewer lending options for businesses.

Sectors such as manufacturing, logistics, haulage, hospitality, and construction are reported to be particularly vulnerable to these rising costs and the resulting squeeze on profit margins.