London’s small and medium-sized businesses face a fresh financial squeeze as the continuing war in Iran threatens to keep interest rates higher for longer, with some companies potentially pushed into insolvency, a leading debt adviser has warned.
Mark Barrie, head of debt advisory at UK accountancy firm Azets, said the combination of elevated borrowing costs, higher fuel and energy prices, supply-chain disruption and weak consumer demand was creating a dangerous squeeze on margins.
“It is a tough time for SME businesses,” he said, warning that the accumulation of pressures “could well lead to casualties”.
Manufacturing, logistics, haulage, hospitality and construction are among the sectors particularly exposed, according to Mr Barrie, who has advised businesses on financing and restructuring for more than 25 years.
Before the conflict, businesses had expected the Bank of England to continue cutting its base rate during 2026, potentially taking it towards 3 per cent by the end of the year or early 2027.
Instead, the rate has remained at 3.75 per cent since January, while economists have begun warning that one or two increases could become possible if energy prices and inflation remain elevated.
That reversal is undermining investment decisions by companies that had expected the cost of finance to fall.
“Many people either planning or considering whether to take finance would have believed the cost of borrowing to be coming down,” Mr Barrie said. “It is not surprising that there is a reduced appetite for debt.”
He warned that some businesses were considering taking on additional borrowing to fund expansion, recruitment or marketing despite already coming under severe financial pressure.
For some, that could be a final attempt to generate growth. For others, Mr Barrie said, additional debt could simply accelerate failure.
“Some shouldn’t be rolling the dice — they should be calling it a day or streamlining the business,” he said.
The pressure is being compounded by rising employer costs, business rates, pension contributions, minimum wages and energy bills.
Companies exposed to international trade are also facing higher freight costs and delays linked to disruption around the Strait of Hormuz. The Drewry World Container Index rose 6 per cent to $2,712 per 40ft container in late May.
A British Chambers of Commerce survey found 80 per cent of firms had experienced or expected an impact from the Iran conflict, including higher energy prices, shipping disruption and rising raw-material costs.
Manufacturers were particularly exposed, with 68 per cent already reporting an impact.
Three-quarters of businesses expected energy bills to rise over the next year, while 36 per cent anticipated difficulties paying them.
Mr Barrie urged business owners to examine cash flow and financial forecasts before taking on new debt.
For Britain’s SME economy, the danger is that higher borrowing costs arrive just as businesses are already struggling with a wider inflationary shock.
If interest rates remain elevated, investment could be postponed, expansion abandoned and companies that borrowed simply to survive could become the next wave of insolvencies.
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