Business lending predicted to fall over next three years

Bank lending to business is predicted to shrink in the aftermath of the UK’s vote to leave the EU, according to the EY Item Club’s latest report on financial services.

Lending is now forecast to drop by almost 4% between now and 2018, compared to predictions for gradual improvement prior to the referendum.  The Item Club’s current predictions are that bank business lending will contract by 1% by the end of this year, by 1.8% next year, and by a further 1% in 2018.

The latest figures released by the British Bankers’ Association (BBA) showed that lending to UK businesses fell for the first time this year in June. Borrowing by non-financial businesses dropped by £526 million over the month while funding from capital markets also fell by £1.9 billion.

The BBA highlighted the fact that the fall only represented a single month’s data and warned that any fall cannot be associated entirely with the Brexit vote at this point. Rebecca Harding, chief economist of the BBA, pointed to a picture of “general nervousness” that she said had been present in the UK economy for a while.

The EY Item Club warned that business lending looked set to slow as businesses delayed investment. Mortgage and consumer lending were predicted to continue to grow but at a slower rate, as consumers spend less on ‘big ticket’ items.

The main problem is not the banks’ willingness to lend, which has been an issue in the past, especially for small businesses. According to the Item Club, the banks are willing to lend, which is good news for businesses who are looking to invest or expand.

Any business fearing for its financial security should explore the wealth of alternative funding options that are available. The report also highlights a growing ‘wait and see’ attitude among UK businesses as the timetable and details of Brexit slowly begin to take shape.

The Item Club has already downgraded its predictions for UK economic growth following the EU vote from 2.6% to 1.9% this year and from 2.3% to 0.4% next year.

By Phil Smith

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