FCA Review Highlights Barriers to SME Finance as Cost Pressures Persist
A Financial Conduct Authority review identified significant barriers for SMEs seeking finance, including complex applications and limited product awareness. The Bank of England kept Bank Rate at 3.75% but three MPC members voted for an increase, with inflation expected to exceed 4% in early 2027. Retail sales rose 0.5% in August, offering some positive news.
The FCA’s review points to practical hurdles rather than regulatory overreach, noting that microbusinesses—95.5% of all SMEs—often face the steepest challenges, from opaque product comparisons to personal guarantee requirements that put owners’ assets at risk. Meanwhile, the Bank of England’s 3.75% rate decision was not unanimous, with three policymakers favoring an immediate hike as inflation is projected to top 4% by early 2027. Retail sales rebounded 0.5% in August, and revised ONS data now shows average productivity growth of 1.3% annually since 1997, partly attributed to technology and AI investment.
These developments could weigh most heavily on smaller firms already stretched by costly credit and slow-paying customers. If inflation forces rate rises, borrowing costs may climb further, squeezing working capital and potentially limiting hiring or investment. Households facing higher prices may cut spending, indirectly affecting retailers and suppliers. However, stronger retail sales and productivity gains offer a counterbalance, suggesting some resilience—though the overall impact will depend on how quickly the Bank acts and whether SMEs can shift toward internal cash management.