Most business owners I speak to track one interest rate, and it is the wrong one. They watch the Bank Rate, because that is the number the news leads on and the number their overdraft moves with. It has not budged since July. Meanwhile the rate the government pays to borrow for thirty years has climbed to its highest level since 1998, and that is the number quietly setting the price of the next fixed-rate loan, commercial mortgage or asset finance deal you sign.
That gap is the whole story, and it is not a small one. The Bank of England is holding at 3.75%. The market is charging the government 5.89%. If you have been waiting for borrowing to get cheaper before you refinance or invest, you have been watching a number that is no longer telling you what your bank is going to quote.
What actually happened
The BBC reports that the yield on a thirty-year gilt — a loan to the British government — rose to 5.89% on Tuesday, the highest since 1998. The benchmark ten-year gilt rose to 5.22%, which the BBC notes is its highest since June 2008, at the height of the financial crisis. City A.M., reporting the same market on the same day, puts the ten-year at 5.25%.
This is not a UK-only event. The BBC reports that borrowing costs in the US, Japan and Europe have hit similar highs in recent days, reflecting investor concerns about inflation, state borrowing levels, and spending by large technology companies on AI. Karen Ward, JP Morgan's chief market strategist for Europe, told the BBC that governments wanting to spend more are increasingly competing for money with technology companies raising cash for AI investment, and that “markets are getting a lot more choice about who they are going to lend to and at what interest rates”. Kathleen Brooks, research director at XTB, put it more bluntly to the BBC News Channel: “Of course, this is red lights flashing.”
Set that against the Bank of England's own position. The Bank held Bank Rate at 3.75% on 30 July 2026, with the current inflation rate at 2.9% against a 2% target, and the next decision due on 17 September 2026. In the same statement the Bank noted that mortgage rates for households and borrowing costs for firms are higher than they were before the conflict in the Middle East. So the Bank is telling you the same thing the gilt market is: the price of money for real businesses has moved independently of the headline rate.
Why the gilt curve, not the Bank Rate, prices your loan
The mechanism is simple once you see it. When a lender gives you a variable rate or an overdraft, it can reprice you whenever the Bank moves, so it follows Bank Rate. When a lender fixes your rate for five years, it cannot. It has to fund that commitment for five years, and the cost of five-year money is set by the same market that prices five-year government debt. That is why a five-year fixed commercial facility follows the gilt and swap curve rather than the Bank Rate, and it is why your quote can go up in a month when the Bank has not met.
| Rate | Where it is | What it prices |
|---|---|---|
| Bank Rate | 3.75% (held 30 July 2026) | Overdrafts, variable facilities, most credit-card and base-linked lending |
| 10-year gilt | 5.22% (BBC, 1 September 2026) | Medium-term fixed lending, commercial mortgages |
| 30-year gilt | 5.89% (BBC, 1 September 2026) | Long-dated fixed debt, pension and annuity pricing |
| HMRC late payment | 7.75% (from 9 January 2026) | Every pound of tax you pay after the due date |
Read the last row again, because it is the one most owners get wrong.
What a single point costs, on a real set of accounts
Take an illustrative but ordinary case: a trading company with a £250,000 facility repaid over fifteen years, coming up for a five-year fix. At 6.5% the monthly payment is £2,178. At 7.5% it is £2,318.
That is £140 a month, which sounds survivable, and it is. The honest way to feel it is annually and in sales. It is £1,677 a year, and £8,386 across the five-year fix. On a 7% net margin, replacing £1,677 of lost profit takes roughly £23,959 of additional turnover every year — won, delivered, invoiced and collected, purely to end up where you already were. That is the real exchange rate between a percentage point and your working week.
Now the part that stings. If that same business is running £40,000 of VAT ninety days late because cash is tight, HMRC charges 7.75% on it. HMRC late payment interest has been set at base rate plus 4% since 6 April 2025, which puts it at 7.75% from 9 January 2026. Ninety days on £40,000 is about £764 of interest, with late payment penalties charged separately on top. Meanwhile HMRC pays you 2.75% when it owes you money — base rate minus 1% — a five-point spread that runs entirely in its favour.
So the ranking is clear and it does not depend on any forecast. Deliberately paying HMRC late is the most expensive borrowing on that table, it is unsecured, and it comes from the one creditor who can act against you without a court order first. If you are choosing what to clear this month, clear that.
What this means for the Budget on 28 October
The chain from a gilt yield to your tax bill is short. The government borrows by selling gilts; higher yields mean a bigger interest bill on new and refinanced debt. The BBC sets out the consequence directly: higher borrowing costs reduce the headroom the government has against its self-imposed fiscal rules, and the more that is forecast to be spent on interest payments, the more likely a spending squeeze or a tax rise becomes in order to meet those rules. The Chancellor, John Healey, has said he will stick to the fiscal rules imposed by his predecessor Rachel Reeves.
Beyond that, what is in circulation is commentary, and it should be labelled as such. Lord Jim O'Neill, the Prime Minister's former economic adviser, told BBC News that high borrowing costs would force the government to “get real” about the state pension triple lock and “excessive” welfare spending. On the same day he told City A.M. that capital gains tax “looms” as a revenue option, and called it “the last thing that should be happening when we want more growth”. Tesco and Marks & Spencer have publicly warned against a Budget tax raid on retailers. None of that is policy. It is the shape of the argument going into 28 October.
My view, for what it is worth: do not restructure a business around a forecast of a Budget. Do restructure it around the numbers that are already fixed and already costing you money, because those are the ones you can act on this month.
Five things to do before the Budget
- List every facility and its expiry date. Loans, commercial mortgages, asset finance, invoice finance, personal guarantees behind any of them. Anything maturing inside twelve months gets a fresh quote now, so your refinancing decision is based on a real number rather than what you were paying in 2024.
- Stress-test the cashflow at one point higher. Not because a rise is predicted, but because £1,677 a year on a £250,000 facility is the difference between comfortable and awkward for a lot of businesses, and you want to find that out on a spreadsheet. This is exactly what cashflow and budgeting work is for.
- Clear HMRC arrears ahead of anything else. At 7.75% plus penalties it is almost certainly your dearest money. If you cannot clear it, a Time to Pay arrangement agreed in advance is a very different conversation from a missed payment discovered later. Our tax planning work starts here more often than people expect.
- Get the tax money out of the trading account. VAT, PAYE and corporation tax moved to a reserve as they accrue removes the temptation to fund working capital with HMRC's money at 7.75%. Getting the account structure right is part of what we look at in business banking.
- If a sale or disposal is in planning, model it now. Gains are currently taxed at 18% within the basic rate band and 24% above it, Business Asset Disposal Relief is 18%, and the annual exempt amount is £3,000 for 2026-27. Run it through our capital gains calculator, and read what the move from 10% to 18% already cost sellers. Model it against today's rates so that any Budget change is a recalculation, not a panic.
What is still uncertain, and when we will know
Two dates settle most of this. The Monetary Policy Committee next sets Bank Rate on 17 September 2026, which governs your variable and overdraft costs. The Budget is on 28 October 2026, which settles the tax question. Between now and then, gilt yields will move on global news — US and Japanese rate expectations, energy prices, AI-driven corporate borrowing — and none of that is forecastable by me or by anyone selling you a forecast.
What is not uncertain: Bank Rate is 3.75%, the ten-year gilt is above 5.2%, HMRC charges 7.75% and pays 2.75%, and a point on a £250,000 facility costs £23,959 of replacement sales a year at a 7% margin. Those four facts are enough to make every decision listed above without knowing what happens on 28 October.
If your numbers are not current enough to run that stress test, that is the actual problem, and it is a fixable one. Monthly management accounts and a live business plan are what turn a Budget into an afternoon's work rather than a bad surprise. If you run a small business with debt on the balance sheet, this is the eight weeks to get that in order.