EY: Businesses to receive £66bn lending boost by 2018

LENDING to businesses will rise for the first time in six years and increase almost 17% by 2018, accountants EY have forecast.

The EY ITEM Club forecast for financial services predicts that a rise in business lending will funnel up to an extra £66bn into UK companies over the next four years, ending more than half a decade of contraction in which the corporate borrowing pot fell by 31%.

Growth in the UK economy is now filtering into financial services, although turning that into profitable growth remains a challenge, said Chris Price, EY’s UK head of financial services.

“Banks are poised to resume lending growth, and asset managers and insurers both foresee strong revenue growth. But, there are external threats ahead, and the odds are that the global economy can’t avoid them all. Political uncertainty across Europe continues to build and risks creating a prolonged period of uncertainty and volatility.

“Also, the EU’s version of QE is unlikely by itself to revive pan-European growth, and may draw out the era of below-norm interest rates with the consequential effect for Euro exchange rates. That is not good news for the rebalancing efforts of the UK economy.”

Since 2008, alternative finance has established “solid foundations” and it unlikely to lose its footing just because banks are gearing back up for action. Bond issuance in particular is up almost 23% since 2009 and ran at £7.5bn per quarter in 2014, contrasting with bank lending, which averaged minus £2bn per quarter in 2014 as companies repaid more than they borrowed.

“While there is little doubt that traditional bank lending will find its feet again, it looks like the recent lending drought has permanently changed borrowing behaviour. The challenge for banks now will be regaining market share from the alternative finance providers who have successfully plugged the gap for the last six years.”