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Peer2Peer Finance News | May 30, 2017

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Businesses borrow less from banks due to Brexit fears

Businesses borrow less from banks due to Brexit fears
Suzie Neuwirth

HIGH STREET banks lent less to businesses in December due to decreased demand, which economists attributed to Brexit-linked uncertainty dampening firms’ investment plans.

The latest figures from the British Bankers’ Association showed that while overall borrowing rose during the month, business borrowing fell by £2.8bn to £261.7bn.

Read more: Nearly half of Brits don’t know where to find business funding

In contrast, consumer credit grew by 6.6 per cent over the month and gross mortgage borrowing was up 3.6 per cent year-on-year to £12.6bn.

Read more: Unsecured consumer credit boom set to continue in first quarter

“The December data [for business lending] is weak, even allowing for a seasonal fall in borrowing by the construction and agricultural sector,” said Howard Archer, chief European and UK economist at research firm IHS Markit.

“The drop in bank lending to businesses in December fuels concern that businesses will become increasingly cautious in their behaviour (especially investment) over the coming months due to mounting uncertainty as the UK’s Brexit process gets underway.”

While business lending slumped, low interest rates continue to fuel the consumer credit boom. With inflation set to rise above the Bank of England’s two per cent target this year and wage growth stagnating, people may need to borrow more money, but be more cautious about doing it in a worsening economic environment.

Read more: UK consumer credit growth hits 11-year high 

Read more: Opportunity for P2P as banks tighten business lending          

“Overall, we’ve seen high levels of consumer and business borrowing, although there are early indications that 2017 could see softer demand for credit from business and households, as they anticipate future interest rate rises and wait for further clarity on Brexit,” said Dr Rebecca Harding, BBA chief economist.

“Consumer credit continued to be strong in December despite weaker retail sales.

“Re-mortgaging approvals were 30 per cent higher than December 2015, reflecting borrowers’ desire to “lock in” lower interest rates ahead of potential rise later this year.

“However, reduced demand for business borrowing may signal plans for investment are being deferred or funded through retained earnings until there is more certainty on the UK’s economic prospects after Brexit.”

Read more: Banks ignore Bank of England Funding for Lending Scheme