Business lending growth to hit five-year low in 2020

Business lending is predicted to increase by just 2.1% in 2020 - the smallest increase since 2015, according to research from EY ITEM Club.

Related topics:  Commercial,  Commercial finance
Rozi Jones
5th December 2019
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"Even if the withdrawal deal is ratified early next year, this won’t get rid of the uncertainty entirely"

With continued Brexit and wider political uncertainty, along with increasing global economic headwinds, the forecast suggests that many businesses are holding off on their investment plans until they have a better understanding of where things stand. This would appear, in part, to be behind the slowdown in lending to large companies and SMEs.

Looking ahead, with negotiations on the UK’s future relationship with the EU still to come, uncertainty looks likely to continue to weigh heavily on businesses’ appetite for credit. Even when assuming a Brexit deal is ratified early next year, the EY ITEM Club Outlook for financial services predicts a slowdown in lending growth to just 2.1% next year – the weakest rate since 2015 – followed by a recovery to 3.4% in 2021 and 3.5% in 2022.

Omar Ali, UK financial aervices managing partner at EY, commented: “With households experiencing some levels of income growth, we’d normally expect to see stronger forecast figures. Brexit, the global economic environment, and broader political uncertainty is resulting in many consumers and firms holding back on big spending plans. Even if the withdrawal deal is ratified early next year, this won’t get rid of the uncertainty entirely as the UK’s future relationship with the EU will still need to be worked out. For firms relying on trade with the EU, this is likely to hold back their spending and, in turn, their appetite for credit. For consumers, it may mean they’re less likely to splash out on big ticket items like buying a house or car.
 
“Financial services firms have had to deal with a decade of weak economic growth and low interest rates. With rates unlikely to rise over the next year at least, the FS sector will continue to face profit challenges. This means Firms will need to re-assess their business models, consider diversification and look at what technologies they can introduce to help reduce costs and drive better customer experiences. The decisions they make now will be pivotal not only to their own future, but also to that of the UK and its global position in financial services well beyond Brexit.”
 

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