No Rate Cut - And Don't Expect One Soon
At its March 2026 meeting, the Bank of England's Monetary Policy Committee (MPC) voted unanimously to hold the Bank Rate at 3.75%. This followed a split 5-4 vote in February, where a slim majority also favoured holding.
The reason? A sharp rise in global energy and commodity prices driven by geopolitical instability in the Middle East has pushed the inflation outlook significantly higher. The Bank now expects CPI inflation to reach 3.0-3.5% over the next couple of quarters - well above the 2% target.
For freelancers and sole traders, the message is clear: borrowing costs are staying elevated, and you need to plan accordingly.
What Does 3.75% Actually Mean for You?
The Bank Rate directly influences:
Business Loans and Overdrafts
Most business lending is priced as Bank Rate plus a margin. At 3.75%, a typical small business loan might carry an interest rate of 7-10%. If you were hoping to borrow for equipment, premises, or working capital, the cost is significantly higher than the near-zero rates of 2021.
Credit Cards
Business credit cards typically charge 20-35% APR regardless of the Bank Rate, but the floor has risen. If you're carrying a balance, this is expensive debt.
Savings
The silver lining: savings rates are also higher. Business savings accounts are offering 4-5% AER. If you have a cash buffer, it's actually earning meaningful interest for the first time in years.
Mortgages (If You Work from Home)
Many sole traders claim a proportion of mortgage interest as a business expense. Higher rates mean higher mortgage payments - but also a larger deductible expense under the cash basis.
Why Inflation Matters to Sole Traders
Inflation doesn't just affect prices in the shops. For self-employed people, it creates a squeeze from multiple directions:
- Rising input costs - materials, postage, software subscriptions, and fuel all cost more
- Client resistance to price increases - your clients are feeling the squeeze too and may push back on rate rises
- Tax bracket creep - income tax thresholds have been frozen since 2021. Inflation pushes your nominal income up, but the thresholds don't move, meaning you pay more tax on the same real income
- National Insurance - the same bracket creep applies to NI thresholds
The personal allowance remains frozen at £12,570 and the higher rate threshold at £50,270 until at least 2028. Every year of inflation without adjustment is effectively a stealth tax rise.
The Energy Cost Problem
The Bank specifically cited energy price rises as the primary inflation driver. For sole traders who work from home or run small premises, this hits directly:
- Electricity and gas bills rising 15-25% in Spring 2026
- Fuel costs up 20% since late 2025
- These costs flow through to everything - delivery charges, supplier prices, heating your home office
If you're using TaxMTD to track expenses, make sure your utility and fuel costs are properly categorised. These are legitimate business deductions that reduce your tax bill.
What Can You Do?
1. Build a Cash Buffer
With rate cuts unlikely before late 2026 at the earliest, uncertainty is the baseline. Aim for 3-6 months of expenses in a business savings account - and at 4-5% AER, your buffer is at least keeping pace with inflation.
2. Review Your Pricing
If you haven't raised your rates in the last 12 months, you've taken a real pay cut. Calculate the inflation impact on your costs and adjust accordingly. Most clients expect annual rate reviews.
3. Maximise Your Deductions
Every allowable expense you claim reduces your tax bill. Use TaxMTD's AI categorisation to ensure nothing slips through the cracks. Common missed deductions include:
- Home office costs (simplified expense: £26/month)
- Professional subscriptions
- Training and CPD courses
- Business insurance
4. Claim Mileage Properly
With fuel prices elevated, the HMRC simplified mileage rate of 45p/mile (first 10,000 miles) is more valuable than ever. Track every business journey with TaxMTD's mileage tracker.
5. Consider Your Business Structure
If you're consistently earning above £50,000, the combination of Income Tax, National Insurance (Class 2 and Class 4), and frozen thresholds means your effective tax rate is climbing. It may be worth speaking to an accountant about whether incorporation makes sense - though the MTD for Income Tax obligations only apply to unincorporated businesses.
When Will Rates Come Down?
The Bank of England cut rates to 3.75% in February 2026 from 4.5% during 2025. But the recent inflation resurgence has stalled any further easing. Market expectations now suggest:
- No change at the May 2026 meeting
- A possible 0.25% cut in August 2026 if energy prices stabilise
- The Bank Rate ending 2026 somewhere between 3.25% and 3.75%
Don't make business decisions based on hoped-for rate cuts. Plan for rates staying where they are.
The Bigger Picture
Higher-for-longer interest rates are the new normal, at least compared to the 2010s. For sole traders and freelancers, this means:
- Cash management matters more - track your income and expenses closely
- Tax efficiency matters more - every deduction counts when margins are squeezed
- Digital tools pay for themselves - the time saved on bookkeeping and the deductions caught by AI categorisation can easily exceed the cost of your software subscription
Start tracking your finances properly with TaxMTD - it's the smartest investment you can make when every pound counts.
Further reading: Self Assessment Guide for 2025-26 · Cybersecurity for Sole Traders · View TaxMTD pricing