Iran War Hikes Borrowing Costs for Midlands SMEs

The ongoing war in Iran is exacerbating the challenges faced by small and medium-sized enterprises (SMEs) in the Midlands, UK. According to Mark Barrie, head of Debt Advisory at Azets, a top 10 accountancy firm, the conflict has pushed up the cost of borrowing for SMEs.

Barrie believes that this will lead to unexpected interest rate rises, which will also curb investment. He notes that prior to the war, it was expected that Bank of England (BoE) base rates would have been reduced by 2026, with a target rate of around 3 per cent by the end of the year or start of 2027.

However, this has now been put on hold, and many economists suggest that there may be one or two hikes from the current rate of 3.75 per cent. This increased cost of borrowing will make it more difficult for SMEs to secure new finance, which could lead to casualties among businesses already struggling under a variety of pressures.

These pressures include rapid rises in fuel costs, increased employer National Insurance contributions, new business rates, pension contributions, minimum wage increases, higher energy costs, supply chain issues, and continuing cautious consumer spending. Additionally, SMEs in sectors such as textiles, manufacturing, and logistics are being hit by delays and container price increases.

Barrie warns that some businesses may be tempted to load additional debt, but notes that this is not a viable solution for those already struggling with existing debt. He suggests that some businesses should consider streamlining or calling it a day rather than taking on more risk.