What last week’s Bank of England decision means for private capital stakeholders

As widely anticipated, the Bank of England voted last week to hold Bank Rate at 3.75%. Whilst markets had expected the decision, it is noticeable that the Monetary Policy Committee (MPC) moved from a 7-2 decision, to a 6-3 one, with three members favouring a 0.25% increase. The move demonstrates the continued uncertainty around the UK’s inflationary environment, particularly in light of geopolitical tension, tariffs and trade disruption and political change, and their combined impact on global energy prices and the wider economic outlook.

For private capital stakeholders, this continued uncertainty underpins a trend that has been building for many years now – private credit is becoming an increasingly attractive and important financing solution.

What is private credit?

Private credit generally relates to debt financing provided by “non-bank” lenders, which typically includes investment funds, insurers and specialist credit managers. Private credit is a broad term, capable of being structured in many forms, encompassing direct senior secured debt through to junior capital such as subordinated debt and mezzanine debt. Increasingly, the market extends beyond direct lending altogether into asset-based finance, NAV (net asset value) financing and hybrid debt-equity structures, reflecting a broadening of the toolkit available to borrowers and investors alike.

Growth in private credit accelerated after the global financial crisis, which compelled regulatory changes that encouraged banks to become more selective with their lending efforts. Private capital managers stepped into the gap that created, forming an increasingly sophisticated market capable of funding acquisitions, refinancings, growth strategies and complex corporate transactions.

The lending market itself has broadened considerably as a result. Today’s participants span UK and international commercial and corporate banks, specialist, mid-tier and challenger banks, institutional investors such as pension funds, insurers, money market funds, real estate investment trusts and hedge funds, non-bank lenders such as direct private capital lenders, private equity, securitisation vehicles and family offices, and market intermediaries such as traders and broker dealers.

The scale of this shift is significant. According to the House of Lords Financial Services Regulation Committee’s recent report on private markets, global private markets as a whole have grown from less than $4 trillion in assets under management in 2008 to around $16 trillion today, with private credit itself increasing from around $0.2 billion in the early 2000s to over $2.5 trillion in 2025, and forecast to reach $3 trillion by 2028. Growth has been led by the US, followed by the UK and the EU: private credit loan issuance grew by 500% in the US, 285% in the UK, and 130% in the EU between August 2022 and April 2024 alone. The UK market, though far smaller in absolute terms, has grown just as sharply: analysis by UK Finance found no outstanding private credit debt in the UK in 2013, rising to £59.5 billion by 2024.

Today, private credit is a mainstay of the financing landscape and undoubtedly an important source of capital for sponsor-backed and founder-led businesses.

Why last week’s rate decision matters 

A stable rate environment provides certainty. Sponsors can underwrite investments with greater confidence; management teams can make decisions about expansion, acquisitions or refinancing with a clearer view of the likely funding costs; and lenders can remove themselves from the tricky business of predicting the next monetary policy move, to focus on business fundamentals.

Last week’s decision is a reminder that rates remain considerably higher than those experienced for much of the last decade. More importantly, market commentary seems to suggest that interest rates will remain stable or face some upward pressure through the remainder of 2026. Though no great result for personal mortgage holders, it does provide relative stability, but with these higher borrowing costs likely to continue for the foreseeable.

As highlighted in the preceding paragraph, a stable interest rate environment in the near term should be positive for borrowers meaning that borrowing costs do not change significantly. From the private capital lender perspective, since most direct lending is on a floating rate basis a higher rate outlook going forward is generally favourable for private credit and direct lending. However, on both sides of the equation, a stable but tending towards higher interest rate climate is not without risk and floating rate debt can increase cash flow pressure on borrowers. A relatively stable interest rate position at present with an outlook of possible future increases should not be mistaken by borrowers for an absence of refinancing risk. Businesses approaching a refinancing in this environment should expect an increased focus by lenders on underwriting discipline, potentially reduced leverage given debt service assumptions, tighter interest cover covenants and longer and more difficult conversations than may previously have been the case, hence why starting the refinancing or new financing process early is prudent.

A market built for flexibility

The appeal of private credit has never been solely around price, but for many private capital participants, its flexibility; its speed of execution; and the ability to structure transactions around specific business needs have given it far greater appeal. Private credit providers often have a different risk appetite to traditional banks and may be willing to lend into industries or situations where banks have stepped back, whether because of concentration risk or historic losses. That flexibility also extends to deal terms: private credit providers tend to have greater latitude than banks in the financial covenants they require, the maturities on offer, the type of security taken and the overall debt quantum. This breadth of appetite does come at a cost – private credit is generally more expensive than traditional bank debt – but for many borrowers it nonetheless represents a valuable route to capital that may simply not be available through conventional bank lending.

It would be a mistake to frame this purely as banks versus private credit. Increasingly, sponsors are running dual-track processes that test both syndicated bank and direct lending options in parallel, a strategy that is becoming common even in the mid-market and creates competitive tension that can improve pricing and flexibility for borrowers. Banks, in turn, are becoming important partners to private credit funds themselves, whether through direct fund financing such as subscription and NAV facilities, or through their own private credit platforms and joint ventures with asset managers. this increasing interconnectedness does have an impact on regulatory oversight of private credit and the Financial Policy Committee of the Bank of England flagged this point in its March 2026 meeting encouraging market participants to ensure they have a clear understanding of their direct and indirect exposures to risky credit markets, including in stress scenarios where correlations and losses can shift outside historical norms.

Looking ahead

Private credit has evolved from an alternative source of lending to become a core component of the private capital ecosystem. Whilst banks remain the dominant provider of lending to the UK economy, their share of the total stock of direct lending to households and private non-financial corporations has fallen from 85% in 2008 to around 80% in 2024, with non-bank financial institutions having accounted for the entirety of the cumulative increase in new UK corporate lending over the last two decades, and now representing around half of the stock of UK corporate lending.

Last week’s Bank of England decision does little to change that trajectory. If anything, a stable – but elevated – interest rate environment continues to demonstrate the value of flexible, relationship-driven capital solutions. The focus for private capital participants now should be less on predicting what changes may come in September, but on ensuring capital structures are best equipped to support long-term strategy and value creation.

The growth in private credit has not gone unnoticed by regulators: the Bank of England’s Financial Policy Committee has observed that private markets have grown significantly without yet being tested by a macroeconomic stress at their current size, and on 4 December 2025 the Bank of England announced a Private Markets System-Wide Exploratory Scenario, involving banks, insurers, private equity firms and pension fund investors on a voluntary basis, running through 2026 with final results due in early 2027. The Financial Stability Board has separately warned that the build-up of leverage and interconnectedness in private markets creates a vulnerability capable of propagating strain through the financial system, and has identified private markets as a priority area for its ongoing surveillance work, publishing a dedicated Report on Vulnerabilities in Private Credit in May 2026. These concerns have been reinforced by a string of high-profile corporate defaults linked to excessive leverage, weak underwriting standards and opaque reporting structures, prompting the Prudential Regulation Authority to step up its supervisory scrutiny of banks’ and insurers’ exposures to private credit.

Increasing regulatory scrutiny and some action is to be expected given that private credit remains a fast growing and increasingly important element of the finance eco system, private credit often allows for bespoke solutions outside of conventional lending parameters. It remains to be seen what regulatory action will be taken in terms of compliance, stress testing, risk mitigation and monitoring or reporting requirements and whether these actions will impact the availability of credit or pricing or simply enhance the view of private credit as a mainstream option. At present, in a market where many businesses will soon be approaching refinancing events, the appeal of private credit solutions may be ever more prevalent notwithstanding the increased scrutiny.