The Bank of England has raised the Bank Rate to 4%, with inflation expected to reach nearly 5% by mid-2027. Here's why SMEs should review their cash reserves.

The Bank of England has raised the Bank Rate by 0.25 percentage points to 4%, its first increase in more than three years. The decision was widely expected, with all nine Monetary Policy Committee members voting for an increase, with one member voting for an increase to 4.25%.

What's behind the decision?

The Bank points to the ongoing conflict in the Middle East, which has disrupted energy supplies and pushed up fuel costs and utility bills.

Inflation currently stands at 3.5%, and the Bank expects it to reach nearly 5% by mid-2027 as higher energy costs work their way through the economy. Businesses facing higher bills may pass some of those costs on to customers, adding to inflationary pressures.

The Bank also notes that the economy has been more resilient than expected. While that's welcome news, it increases concerns that higher energy costs could lead to wider price rises, which is one of the reasons behind the decision.

Governor Andrew Bailey has cautioned that this doesn't necessarily signal a long series of interest rate increases. However, further rises remain possible if the conflict continues to put pressure on energy prices and inflation.

What businesses are telling the Bank

The Bank's latest Decision Maker Panel survey gives an indication of the pressures businesses are facing.

In October, 68% of firms expected to increase their prices over the next year in response to higher energy costs, up from 57% in September. Meanwhile, 71% expected their profit margins to fall.

Wage growth is easing, but with energy costs remaining high, businesses have good reason to keep a close eye on their cash reserves.

Why this matters for SME cash

A higher Bank Rate can mean increased borrowing costs, but it can also create opportunities for better returns on savings.

However, savings rates don't always move in line with Bank Rate, and the returns available can vary considerably between banks and products.

With inflation expected to rise further, businesses holding significant cash reserves could see the purchasing power of that money eroded if it's earning a low rate of interest.

It's a good time to ask a few questions:

When did we last review our business savings? It's easy to leave cash in the same account for months or years without checking whether better options are available.

Are we getting a competitive return? Check how your current savings rate compares with other products on the market.

How much cash do we need to keep accessible? Consider upcoming tax payments, payroll and other commitments before deciding how much could be placed into savings.

Is our cash spread across different providers? Diversifying deposits can help reduce the risks associated with holding large balances with a single institution.

Could we make managing our savings easier? Comparing rates and managing accounts across multiple banks can take valuable time.

How Akoni can help

Comparing business savings accounts across different banks can be time-consuming, particularly if you're looking to spread your cash across more than one provider.

Akoni brings savings products from a panel of 25 partner banks together in one place, making it easier to compare rates and terms, place deposits and manage your savings through a single platform.

With easy access, notice and fixed-rate options, including products with low or no minimum deposit requirements, businesses have more choice over how their cash is managed.

Could your business cash be working harder?

Compare savings products from Akoni's panel of partner banks and explore the options available for your business.

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