The financial services industry has warned Bank of England Governor Andrew Bailey about the rising levels of unsustainable debt held by businesses amid the Covid-19 pandemic.
Research from industry body TheCityUK’s recapitalisation group has predicted that the level of unsustainable debt held by UK private, non-financial businesses could rise to the range of £90bn to £105bn.
Of this, coronavirus business interruption loan scheme lending could contribute £10bn to £20bn, the research found.
TheCityUK wrote to Bailey to say that these levels of unsustainable debt could inhibit employment, research and development, investment and ultimately a smooth economic recovery back to growth.
To address this potential level of unsustainable debt, the group said firms will likely need to raise significant amounts of new equity or restructure debt.
“The economic lockdown created by the pandemic has required unprecedented interventions. Businesses have been put into suspended animation until they can safely reopen,” said Miles Celic, chief executive of TheCityUK.
“This was absolutely the right thing to do, but it means the job is not yet done. The economy will need to be reawakened as part of its process of recovery.
“Our industry is determined to play its part in getting the country back on its feet.
“Working at a pace and with real determination, firms across the industry are collaborating to identify a financially viable pathway to recovery and a return to long-term growth for UK businesses.”
This follows a recent report from TheCityUK and global innovation transformation consultancy PA Consulting that called for a more consolidated, user-friendly approach to fintech regulation.
“The UK’s regulatory sandbox approach has been hugely successful and internationally acclaimed, but is starting to show limitations as the sector grows and matures,” said Celic. “A broader framework needs to be developed with industry to reflect the expansion of the fintech sector and ongoing regulatory development of maturing firms.”