Business borrowing forecast drops by £7bn, says EY

The forecast for business borrowing in 2021 has dropped by £7bn, according to EY Item Club’s ‘Interim Bank Lending Forecast’.

British banks are set to lend businesses in the country a net £19bn this year, down from £26bn forecast in February, as the UK’s economic recovery from the Covid-19 pandemic “accelerates”.

Growth is forecast to slow further next year by 1.6%, totalling £7.8bn of net new lending, as firms focus on their balance sheets

Anna Anthony, UK financial services managing partner at EY, said: “Given how difficult the last 15 months have been for millions of families and businesses up and down the country, it’s encouraging that the economic recovery will be quicker and stronger than initially forecast, boosting the fortunes of businesses and sparking a rise in consumer spending.

“That’s not to say though that there won’t continue to be challenges ahead. For the banking sector, the lockdowns have had a unique and divergent impact on lending volumes.”

She added: “While many businesses borrowed more than normal just to survive and millions of consumers repaid record levels of personal debt and borrowed less, these patterns will likely be relatively short-lived. The housing market remained resilient through the disruption, but a slowdown in activity is expected later this year and into 2022.

“The banks will continue to support businesses and households through the pandemic and beyond, but modest lending growth on some fronts combined with the ongoing very low interest rate environment means the pressures on profitability will remain front of mind for the sector for the foreseeable future.”