A Bank of England Economist Just Told Scottish Business Leaders Rates Are Staying Higher for Longer. Here's What That Actually Means.

Interest rates were supposed to be falling by now. A Bank of England economist addressing Scottish business leaders this week made clear that assumption needs revising. If you're borrowing, investing, or carrying variable-rate debt, the calculus on your next decision just changed.

The message delivered to Scottish business leaders this week was blunt: rates are not coming down as fast or as far as many had hoped. A Bank of England economist, speaking directly to senior figures in the Scottish business community, set out the case for why borrowing costs need to remain elevated, citing persistent inflationary pressure in services, a tight labour market, and wage growth that continues to outrun the Bank's 2% target. This was not a theoretical lecture. It was a practical warning aimed at people running real businesses.

For context, the Bank of England's base rate has been the dominant variable in Scottish SME finances for the past three years. According to the Bank of England's own monetary policy summary, services inflation in the UK remains stubbornly above 5%, and it is that figure, not headline CPI, that is driving continued caution at Threadneedle Street. The implication for business owners is straightforward: anyone who pencilled in rate cuts as part of a 2025 or 2026 growth plan needs to revisit those numbers.

Scottish SMEs are disproportionately exposed to rate sensitivity compared to their larger counterparts. The Federation of Small Businesses Scotland has consistently flagged that smaller firms rely more heavily on variable-rate overdrafts, revolving credit facilities, and floating-rate commercial mortgages than larger businesses, which have greater access to fixed-rate corporate debt markets. When the Bank holds rates, those smaller businesses feel it more acutely in their monthly cash position, not in a quarterly report.

There is also a demand-side effect that tends to get overlooked. Higher rates compress consumer and business spending across the economy, which means the trading environment for Scottish retailers, hospitality operators, and professional service firms stays tighter than it would under looser monetary conditions. Scottish Government economic data shows that consumer-facing sectors in Scotland, particularly outside Edinburgh and Aberdeen, are still operating below pre-2022 revenue levels in real terms. Sustained higher rates do not help that recovery.

The harder truth is that the Bank is not wrong to be cautious. Cutting too early and reigniting inflation would be far more damaging to small businesses over a three to five year horizon than holding rates for another two or three quarters. The Scottish business leaders in that room will have understood that. But understanding the logic does not make the overdraft bill any smaller. The practical task now is to plan for a higher-for-longer environment as the base case, not the worst case.

What this means for you: If you have variable-rate borrowing, check with your lender or broker this week whether fixing part of your facility makes sense at current rates. Build your next 12-month cash flow forecast on the assumption that rates will not fall meaningfully before mid-2026. Scottish Enterprise and Business Gateway both offer free financial health reviews for SMEs; book one if you have not done so in the last six months. The businesses that come out of this cycle strongest will be the ones that stopped waiting for the rate cut and planned around the rate that exists.