Inflation is rising: What should business owners be preparing for?

The BOE usually doesn’t make cuts to interest rates when inflation rises. Although this may seem counterproductive at first glance, this strategy aims to stop inflation rising even further by affecting consumer spending habits. 

For example, food prices have risen sharply over the past few years, and this has caused consumer behaviours which typically lead to even higher inflation. If people expect food prices to keep rising, they may: 

• Ask for higher wages
• Spend quickly to avoid further price increases
• Be less inclined to save or invest their money

To combat this, the BOE does not want to cut interest rates because lowering interest rates would make borrowing cheaper and spending easier, which (if consumers behave in the typical fashion) would make inflation worse.

Inflation is rarely caused by a single factor. In September 2025, several key contributors included:

• Energy Costs: Ofgem’s 2% increase in the energy price cap is set to take effect this winter, adding pressure to household and business budgets.
• Housing Costs: The Retail Price Index (RPI), which includes mortgage interest and insurance, rose to 4.8%, showing a near 5% increase in the cost of living compared to last year.
• Global Supply Chains: Ongoing disruptions and geopolitical tensions continue to affect the cost and availability of goods.

These pressures are all linked, and put strain on small business owners across every sector from manufacturing to hospitality.

One way to protect your business from further rises is to take advantage of fixed-term contracts for essentials like energy contracts and loan rates. It is worth noting however, that while fixed contracts can protect against rising costs, they can limit your flexibility and leave you worse off if market prices fall or your business needs change unexpectedly.

Borrowing costs, including loans and overdrafts, will remain high, meaning clients might be wary about investing or hiring due to the cost of capital. Many business owners will face cash flow pressures due to elevated repayments on variable-rate debt, a common form being commercial mortgages. A further reduction in consumer demand is also to be expected, with businesses in retail, hospitality, and discretionary services likely to be most affected.

Higher financing costs for landlords and property developers could lead to property values stagnating or declining as borrowing remains expensive.

Personal finances will also be strained by rising mortgage repayments, especially on variable rates. 

It’s important to review how these changes are impacting your specific sector before adjusting cash flow strategies and other financial aspects of how you run your business.