Bank‑to‑Business Lending Keeps Low Until 2024, but Eyes Rebound in 2025
According to the latest EY ITEM Club UK Bank Lending Forecast, loan growth for UK firms stands at a modest 0.8% for 2024. That’s a polite shrug compared to last year’s sharp decline – but still leaves businesses feeling a bit wary about taking on debt in an economy that feels as uncertain as a plot twist in a thriller.
The Why Behind the Slow‑Start
- High borrowing costs continue to make lenders and borrowers cautious.
- Uncertain domestic and global conditions keep business confidence in the dust.
Friends of the business community may be heading toward a rain‑cloud of debt‑related anxiety.
Looking Ahead: 3.5% Bounce in 2025
Once inflation and interest rates decide to take a chill pill, the forecast predicts a nice 3.5% net growth in 2025. That should give businesses a nudge to pull the trigger on projects and expansion plans.
Overall Lending Outlook
Adding up household mortgages, consumer credit, and business loans, total bank lending is measured to climb:
- 2.2% net in 2024 (up from 0.6% in 2023)
- 3.5% net in 2025
- 3.4% net in 2026
Despite slipping into a technical recession last year, falling inflation and energy costs, along with the anticipation of rate cuts, the UK GDP is plotted to grow 0.9% in 2024, jump to 1.8% in 2025, and settle at 2% in 2026. These glimpses of a budding economic revival drive the uptick in consumer borrowing and business credit expectations for the coming years.
EY’s Take – A Bit of Optimism Amidst the Chaos
Anna Anthony, EY’s UK Financial Services Managing Partner, summed it up: “Another tough year for UK businesses and households, but momentum can pick up after a shaky 2023. If borrowing costs and interest rates dip as projected, we expect market confidence to light up the sky. Yet geopolitics and the looming big general election still keep dark clouds hovering.”
UK business lending to remain weak in 2024 after a sharp contraction in 2023, but rebound in 2025 and 2026
UK Business Lending: A Roller‑Coaster to 2024
Last year, lending to UK firms slid sharply by about 2.1% (net), a head‑turning dip that made many CFOs go from optimistic to “wait‑for‑the‑next‑wave” mode. While the future may look like a calm sea, the current waves keep washing the shores of borrowing tight.
What’s the Forecast for 2024?
- Even with a few bright spots on the horizon—such as easing inflation and potential Bank of England rate cuts—lender appetite is expected to stay lukewarm, with growth stuck at only 0.8% (net).
- High borrowing costs and global geopolitical jitters continue to keep businesses on the fence.
Why the Slow Turn?
- Inflation Is The Big Boss – If price levels don’t drop, firms will keep tightening belts.
- Bank of England’s future rate decisions are a huge mystery; a cut could spark a boom.
- Digital disruption and AI are promised game‑changers, but not yet enough to sway a cautious investor.
- Green energy moves are gaining traction but still a fledgling market with lots of “to‑see‑if‑it works” vibes.
Looking Ahead: 2025 + 2026
A bright glass appears on 2025’s horizon: a 3.5% (net) lending jump,
the biggest upward swing since the pandemic loan surge of 2020. Then 2026 shows another steady climb at 3.2% (net), as the economy steadies and interest rates find a comfortable groove.
Anna Anthony’s Take
“Business investment stays on the cautious side in 2024—they’re still treading careful lines on their balance sheets,” says Anna. “But as the economy sorts itself out, confidence will lift, and we’ll see bank lending to UK businesses rock‑solidly rise from 2025 onward.”
Bottom line? UK business borrowing may feel like a plunge into a deep pool with a slow swim before the surface pops over, but the big splash is headed for 2025 and beyond. Keep an eye on the inflation tide—it’s the key to catching that wave!
Mortgage lending demand set to rise in 2024 and 2025, as rates fall
Why UK Home‑Loan Traffic Might Get a Boost This Year
Last year saw mortgage lending dip a hair – a tiny drop of 0.1% – but that’s not the end of the story. Experts say the market could start picking up again, thanks to two key drivers: the chance of lower interest rates and a cooler inflation trend.
Bank of England’s Forecast
- Eye‑on‑the‑future: EY ITEM Club predicts the Bank will slash its policy rate from 5.25% down to 4% by the end of 2024.
- Inflation’s on a downward slide, meaning home‑loan costs are set to follow suit.
Projected Growth Numbers
Based on those odds, the club forecasts the following net increases in mortgage lending:
- 2024: +2.2%
- 2025: +3.4%
- 2026: +3.3%
So, while the slope dipped a bit in ’23, the heat’s on for a stronger lift in the coming years – and that’s good news for anyone looking to buy new digs.
Consumer credit demand set to slow this year and next, as inflation continues to fall
How the UK’s Credit Scene is Shifting (and Why It Matters)
Ever notice how your phone bill feels like a small piece of the universe’s inflation puzzle? Yeah, that’s the vibe of the UK unsecured credit market.
2023: The Big Leap
- Unsecured credit shot up by 6.1% (net) in 2023.
- That’s the fastest rise since 2017 – a decade‑long sprint!
- What pulled it up? Simple: prices keeping climb and a cost-of-living crunch.
2022: A Steady Start
- 2022’s growth ticked up to 4.2% (net).
- Not as dramatic, but still indicating a steady cash flow grind.
So, What’s Next? 2024‑2026 Forecast
EY ITEM Club, the sharpest mind in the credit room, predicts a cooling trend if inflation keeps dropping.
- 2024: Growth dips to 5.2%.
- 2025: Further slide to 4.2%. “Grown‐ups’ knock‑knock joke” would be “What’s the difference between a bank and a fridge? One is staying cool!”
- 2026: A slight bump to 4.5% as things settle.
Why It Matters for You
- Higher unsecured credit means more folks borrowing without collateral.
- When inflation eases, lenders become a bit more cautious.
- Keep an eye on your credit score; it’s the most invisible yet influential factor in this game.
Bottom line: the credit pace is easing, but the market still hums with opportunity. Keep your wallet ready, your interest rate curious, and your financial sanity safe – and enjoy the ride!
Default rates are set to rise, but from low levels
EY ITEM Club Braces for Rising Write‑Off Rates Amid Higher Borrowing Costs
Business Loans
Mortgage Impairments
Consumer Loans
Why the Numbers Aren’t a Crisis
- Unemployment is creeping up, but not catastrophically.
- More borrowers are transitioning from low‑fixed‑rate mortgages to higher‑rate deals — a choppy but manageable seas.
- Overall write‑off levels remain comfortably below the 2009 and 2010 highs.
Dan Cooper, UK Head of Banking and Capital Markets at EY
“There’s no doubt the econosphere feels like a roller‑coaster for both businesses and households,” he chuckles. “Inflation is easing a bit, but those hefty borrowing costs are still looming. Banks need to keep a hawk’s eye on vulnerable customers and the rising impairments, especially as fixed‑rate mortgages get nudged onto higher rates this year.
“The sector’s juggling slow lending growth with big‑picture priorities like AI and sustainability. Even if the economy smooths out, the impact on consumer and business mood will take time. That’s why banks must keep their money, people, and resources flowing into key areas to stay competitive.”
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