Business lending by Britain’s banks remains on track to rise in 2015, despite falling sharply in June, according to a new forecast from the EY Item Club.
Boosting business investment is seen as an essential factor in restoring Britain’s shaky productivity record and putting the economic recovery on a sustainable footing.
But recent official figures showing a £5.5bn decline in outstanding business lending in June raised doubts about whether the financial sector is ready to back the corporate sector.
However, EY’s analysis, carried out in conjunction with consultancy Oxford Economics, suggests business lending could still eke out a small rise, of 0.25%, over the year as a whole – and should continue increasing over the next few years, even with interest rates set to increase.
Any rise in business lending would be the first since it peaked at £575bn in 2008.
“Consumer credit finally turned the corner in 2014, and now business lending will hopefully follow suit,” said EY’s UK head of banking and capital markets, Omar Ali.
He predicted that while this year’s rise is likely to be small, by 2019 business lending could be 25% above last year’s level.
The forecast also suggests business investment will rise at an average annual rate of 6.5% over the next three years.
Britain’s banks have been castigated following the crisis for being too willing to lend into frothy property markets, and too cautious about extending loans to firms.
EY’s healthcheck of the financial sector, published on Monday, also pointed to an uncertain climate for the insurance sector, which is being forced to adapt to the chancellor’s sweeping changes to the pensions system, as well as an increase in insurance premium tax, and the lacklustre returns available in many financial markets.
Mark Robertson, UK head of insurance at EY, said: “Despite improvement in the economic environment for insurance, large sweeping change has hit both the general and life sectors.
“While some insurers will use this to improve their market position, others will struggle to respond quickly to the changing environment.”
