Top Service News
Business lending predicted to contract
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Bank-to-business lending is forecast to contract 3.8% (net) this year, from net growth of 3.7% in 2022, before returning to growth (of 0.9% net) in 2024 according to research by leading economic forecasting group EY Item Club.
The outlook for business lending is set to improve next year as the economy begins to recover. However, growth remains subdued, and only 0.9% net growth is forecast in 2024 as businesses, especially SMEs, continue to deal with the economic shocks of recent years.
While bank lending to businesses soared during the pandemic as companies utilised state-subsidised lending schemes this year it is forecast to fall into negative territory by almost 4% (-£18.8bn). Borrowing demand is expected to weaken as firms – both large corporates and SMEs – face multiple pressures from higher costs of servicing debt, lower earnings and continued global supply chain disruption.
2024 should see growth in net lending resume as high inflation eases and the economy starts to recover. However, it is likely to be sluggish with EY Item Club forecasting low growth of 0.9%, equating to net lending of £4bn, reflecting the damage to sentiment from the series of economic shocks in recent years. Growth is forecast to then pick up to 3.1% (£15bn) in 2025.
EY also forecasts that write-off rates on company loans will reach 0.8% in 2023, before dipping to 0.6% in 2024 and 0.5% in 2025. This compares with 0.2% in 2021 and 0.3% in 2022. However, the forecast rise for 2023 is still a long way short of rates of 1%-1.5% in the early 2010s, following the financial crisis.
Emma Reilly, director of construction credit specialists Top Service Ltd, said:
“As bank lending tightens we expect to see debtor payment days lengthen. Those businesses extending trade credit should ensure that they are running a tight ship in relation to credit control”.