Business lending across the UK is expected to rise at its fastest in 13 years as companies take on debt to survive Covid-19, according to the EY ITEM Club.
The economic forecasting group's Interim Bank Lending Forecast found lenders approved just over £30 billion of loans in March alone, 100 times the average of net lending over the 12 months to February.
Its predicted increase of 14.4% for the year compares with 2% in 2019 and an average of -1.4% from 2010 to 2019.
The Government-backed Bounceback Loans and Coronavirus Business Interruption Loans Scheme have helped fuel a rise in year-on-year growth from 0.6% in February to 11.1% in May.
Interest rates were cut to an all-time low of 0.25%in March by the Bank of England, which has also driven down the cost of borrowing by buying hundreds of billions worth of Government and corporate bonds.
Omar Ali, UK Financial Services managing partner at EY, said: “Covid-19 has caused unprecedented challenges for the UK economy, putting financial strain on both businesses and households, and has resulted in a staggering amount of money being lent to firms over a short period of time.
"With a weakened economy, banks face increasing write-offs on all types of lending and, with slow growth for consumer credit forecast, this will add pressure to their profitability and ultimately their ability to lend more to businesses to help kick start growth.”
EY ITEM Club predicted lending to consumers will fall by 15.9% this year after spending was curbed during lockdown and households tighten their belts in anticipation of widespread job losses.
It forecast mortgage lending would grow 2.6% in 2020, the slowest rise since 2015.
Dan Cooper, UK head of banking at EY, said: “Even assuming the economy bounces back in the short term, we’re likely to see very weak growth in loans to home buyers and consumers for some time to come."
