The Bank of England's Test of Torment: Anticipated sustained elevation of interest rates

The Bank of England has announced an interest rate increase to 5.25%, marking the highest level since April 2008. This decision, made at 12pm, comes as a bid to keep England from entering a recession and bring inflation towards its 2% target.

However, the move has caused concerns for the UK's investment ecosystem, particularly for scaling businesses in tech and companies with limited cash reserves. Clare Trachet, CEO and Founder of Trachet, has expressed her concerns about the impact of the interest rate rise on the investment landscape.

According to Trachet, the increase is likely to lead to a growing number of down rounds in the coming year, as companies have to give up a larger portion of their equity to raise the same amount of cash. Companies with limited cash reserves are finding it difficult to secure funding due to the interest rate rise and an inactive IPO market.

The uniquely favourable conditions experienced in the past decade, defined by low global neutral interest rates, plentiful resources, and limited inflation, are unlikely to return. As a result, the financing for growing technology companies is becoming increasingly challenging, creating a tougher capital environment and dampening IPO market activity.

Evidence of this can be seen in the struggle of PE firms to sell companies and IPO market volumes hitting yearly lows in 2025. Key players in the UK IPO market, such as Bitpanda, Coinbase, Robinhood, eToro, and Revolut, represent a significant challenge in the fintech and crypto asset brokerage sectors.

The MPC's efforts are expected to bring inflation towards its 2% target, with two members of the committee voting for a 0.5% interest rate increase. Inflation rates fell to 7.9% in June from 8.7% in the previous month, indicating a positive step towards the target.

However, the interest rate rise is expected to impair growth going into the Autumn, causing uncertainty for the rest of the year. Clare Trachet advises investors and businesses to focus on value creation and profitability over headcount growth and valuations.

Etienne Martin's image was included in the article. Despite the challenges, the economy has proven more resilient during a period of high interest rates than expected in May. Energy prices are expected to fall over the rest of the year, bringing inflation down below 5% in the fourth quarter.

The interest rate rise marks the 14th by the Bank of England. The MPC had a three-way split on the decision, reflecting the delicate balance between controlling inflation and maintaining economic growth.