What a Bank of England interest rate hike will cost UK AI and tech startups
A rise in the Bank of England’s main interest rate on Thursday (5 November) would add little to start-ups’ costs in the United Kingdom, but it would increase the cost of doing business and reduce the likelihood of lending.
This is the view of Charles Lagares, Chief Operating Officer at EBC Financial Group, who spoke to HotMinute ahead of the expected hike. Money markets, where banks and investors lend to each other for short periods, expect a quarter of a percentage point, from 3.75% to 4%.
If the rise goes ahead, start-ups with loans linked to the BoE’s rate would pay about £2,500 more a year for every £1 million borrowed, he said.
“The bigger cost is the return investors want for backing a young company that could fail, which they measure against what they can earn safely. Lending to the UK government for ten years, by buying a 10-year gilt (a government bond), offered a yearly return, known as the gilt yield, of about 5.2% on 2 November. Next to that, a quarter of a percentage point is a small step.”
“However, investors and borrowers get nervous. Liquidity starts becoming less flexible, with covenants and guarantees being the norm. Equally important assets get a haircut and by this, I mean the value of an asset gets less value because with less liquidity comes few buyers. Lenders must protect themselves, so the market becomes less friendly.”
The Office for National Statistics (ONS) reported that inflation rose to 3.5% in September from 3.1% in August, and by 30 October markets were treating a rise on 5 November as almost certain.
That means market interest rates already include the rise, so the decision itself would come as little surprise.
UK start-up funding is positive
UK start-up funding has largely held up, but a few large rounds account for most of it, said Lagares. He pointed to data from HSBC and Dealroom, which shows that UK start-ups raised $6.1 billion in the third quarter of 2026, the second-strongest third quarter in five years.
Of this, 11 deals of $100 million or more raised $3.5 billion of it (58%).
Notably, health start-ups had the most deals of any sector (62), and raised $645 million between them.
“So the headline figure says more about a small number of big rounds than about how easy it is for a typical start-up to raise money,” Lagares said.
“For most, higher rates may show up in the terms of a deal. When safe government bonds pay more, investors can ask for more from a risky company, such as a bigger slice of it for the same money.”
Why UK start-ups move to the US
Lagares noted that a single Bank of England rate rise gives a start-up little reason to move to the United States.
He noted that the US Federal Reserve raised its own rate to a range of 3.75% to 4% on 16 September and held it there on 28 October.
“A BoE rate of 4.00% would put the UK level with the top of that range. The exchange rate pulls in different directions. A weak pound helps a start-up that raises money in dollars but pays its staff in pounds and hurts one that buys dollar-priced chips and cloud services. A stronger pound, which a higher BoE rate can bring, does the reverse,” he said.
Instead, Lagares noted that the stronger pull towards the US is a deeper pool of money: more investors able to put in very large sums, and more buyers for a company’s shares when it lists on the stock market.
According to KPMG, venture capital investment reached $98.4 billion in the US in the third quarter, about 14 times the $6.8 billion in the UK. Lagares added that the same pull has reached larger companies.
“Wise, a payments company that started in the UK, began trading on the US exchange Nasdaq on 11 May and kept a secondary listing in London. Its Chair, David Wells, said a US listing gives Wise better access to ‘the world’s deepest and most liquid capital market’.
