When will interest rates go down again and how do they affect equipment finance?

Recently, the Bank of England cut interest rates from 4.75% to 4.5%, marking its third reduction since August 2024. While that’s a step in the right direction, the Bank has signalled that it will be cautious about further cuts.

Interest rates are a big deal for businesses, especially when it comes to financing options like loans, leases, and equipment purchases. So, how do these rates work, and what impact do they have on your business?

What are interest rates and why do they change?

Interest rates basically show how much it costs to borrow money or how much you earn from savings. The Bank of England’s base rate is a major factor in setting these rates. It affects what banks charge for business loans, equipment finance, and what they offer for savings accounts.

But interest rates aren’t just shaped by the Bank of England’s base rate. Swap rates—used by banks to exchange fixed and floating interest rates—also play a role. For example, in January 2025, even though the Bank of England lowered its base rate, swap rates didn’t follow suit and even went up a little.

The Bank of England changes interest rates to control inflation. When rates go up, it helps reduce spending and demand, which helps bring inflation down. Lowering rates, on the other hand, can boost the economy when inflation is under control or during tough economic times.

Equipment leasing and financing under changing rates

When it comes to equipment finance, rate changes can directly affect monthly payments. With the recent rate cuts, businesses financing equipment may see interest costs reducing, easing financial pressure.

Leasing offers flexibility—allowing businesses to upgrade equipment regularly and manage cash flow without large upfront investments. For those considering new leases, now may be a good time to lock in lower rates before further increases.

Will interest rates go down further?

It’s hard to say for sure, but many experts think interest rates may keep dropping throughout 2025. The markets expect several cuts this year, depending on how inflation and the economy perform.

As of February 2025, the Bank of England has lowered its growth forecast for the UK economy from 1.5% to 0.75%. While they’re still cautious about future rate cuts, they’re closely watching things like National Insurance hikes and global economic uncertainty before making any decisions.

How do interest rate changes affect business financing?

For businesses, rising interest rates mean higher borrowing costs. This can affect loans, leases, and equipment finance, putting more strain on cash flow. If you have a variable-rate loan or lease, you’ll see an immediate increase in your monthly payments when rates go up. On the other hand, businesses with fixed-rate loans or leases might not feel the change right away. However, refinancing or renegotiating terms in the future could be a smart move if rates drop.

Equipment leasing and financing in a changing rate environment

When interest rates change, businesses financing equipment may notice a difference in their monthly payments. With recent rate cuts, those financing new equipment might find themselves paying a little less in interest, which can ease some of the financial pressure.

Leasing offers flexibility too, allowing businesses to upgrade equipment regularly and manage cash flow without making large upfront investments. If you’re thinking about leasing equipment, now could be a great time to lock in lower rates before they rise again.

The impact of tax and wage law changes on financing

Starting in April 2025, businesses will face changes to National Insurance contributions and minimum wage increases, which will add to the financial strain from higher interest rates. To help manage these additional costs, more businesses might turn to equipment finance as a way to avoid draining cash reserves.

Leveraging finance in uncertain times

In uncertain economic times, equipment finance can be a lifeline for businesses. It gives you the flexibility to spread payments over time and avoid tying up large amounts of capital. Plus, leasing can offer tax benefits, like reducing taxable income, which can be especially valuable for SMEs operating on tight margins.

Planning for the future

With interest rate changes, tax hikes, and rising wage costs, businesses need a smart strategy for managing finances. Equipment finance can help tackle these challenges and keep your business competitive, even in a fluctuating market.

At Buckingham Leasing, we understand how quickly things can change, and we’re here to offer flexible finance solutions tailored to your needs. Reach out to us today to see how we can help your business navigate these shifts.