Higher borrowing costs could force logistics firms to delay investment in vehicles, warehousing and technology
UK logistics businesses face another financial squeeze after the Bank of England raised interest rates to 4%, prompting warnings of higher borrowing costs, reduced investment and weaker freight demand.
Business group Logistics UK said the increase would place further strain on transport operators already struggling with rising costs and tight profit margins.
The Bank of England announced on 5 November that its Monetary Policy Committee had voted by eight to one to raise Bank Rate by 0.25 percentage points, from 3.75% to 4%.
The decision is intended to tackle mounting inflationary pressures, particularly those driven by rising global energy prices.
However, Logistics UK warned that the move could make it increasingly difficult for businesses to finance essential investment in vehicles, warehouses and new technology.
Ben Fletcher, chief executive of Logistics UK, said the increase would come at a particularly challenging time for the industry.
"The decision by the Bank of England to increase interest rates to 4.0% will add further pressure to UK logistics businesses," he warned.
He said many operators were already working with narrow profit margins while facing persistent increases in operating costs.
Higher interest rates could also make borrowing more expensive, potentially forcing businesses to delay investment in equipment and infrastructure needed to improve efficiency.
Smaller operators could be particularly vulnerable, with Logistics UK highlighting that 99% of businesses in the sector are small and medium-sized enterprises (SMEs).
The organisation fears the additional financial burden could restrict growth across an industry responsible for transporting goods throughout the UK.
Freight services are also essential to agriculture, moving farm produce, animal feed, fertiliser and other supplies between farms, processors, retailers and consumers.
Any sustained slowdown in logistics investment could therefore have wider implications for the agricultural and food supply chains.
Mr Fletcher acknowledged that higher interest rates could help tackle inflation over time but warned of potential consequences for businesses in the shorter term.
He said the increase could lead to "increased operating costs and potentially weaker consumer and business demand", placing further pressure on freight volumes.
Reduced consumer spending and weaker business activity could mean fewer goods moving through supply chains, adding to the difficulties facing transport companies.
The Bank of England's decision comes amid renewed concerns about inflation, with the annual Consumer Prices Index rising to 3.5% in September.
The Bank expects inflation to reach around 5% by the middle of 2027, largely reflecting higher energy prices and their wider impact on the economy.
Policymakers said the latest increase was necessary to prevent inflationary pressures from becoming more firmly embedded in prices and wages.
However, Logistics UK believes prolonged high borrowing costs could undermine efforts to improve productivity and strengthen the resilience of Britain's freight network.
Mr Fletcher warned that "sustained high borrowing costs risk slowing investment" when businesses need to modernise their operations and expand capacity.
The organisation represents more than 22,000 members across road, rail, maritime and air freight, as well as ports, airports, warehousing and businesses relying on freight services.
According to Logistics UK, the wider sector employs 8% of the UK workforce and contributes around £175 billion annually in gross value added to the economy.
It also supports more than £1 trillion in international trade, underlining the importance of efficient transport and distribution networks to businesses across the country.
With borrowing costs rising alongside existing pressures from fuel, energy and other operating expenses, the industry faces further uncertainty over investment and future demand.
The Bank of England's next interest rate decision is scheduled for 17 December, when policymakers will assess whether further action is needed to bring inflation under control.