Business Environment Profiles - United Kingdom
Published: 21 May 2025
Business lending
505 £ billion
0.9 %
This report analyses the total stock of business lending in the United Kingdom. The data is sourced from the Bank of England (BoE) in addition to estimates by IBISWorld. The figures represent the average monthly outstanding amount of pound sterling and all foreign currency loans to private non-financial corporations (PNFCs) made by monetary financial institutions during each financial year (i.e. April to March). The data is adjusted for seasonality.
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Business lending to PNFCs by monetary financial institutions is expected to increase at a compound annual rate of 1.7% over the five-year period through 2024-25, to reach £486.3 billion. However, the total amount of outstanding loans has fluctuated in recent years, driven by changes in the supply and demand mix for corporate lending and borrowing respectively. Typically, demand for bankroll and the supply of available funding are influenced by a vast spectrum of economic and socio-economic factors. These factors include: central bank monetary policy (i.e. a demand-side economic policy used to control inflation, consumption and liquidity by managing the state's money supply and interest rates); economic performance, embodied by the value of domestic output (i.e. real gross domestic product (GDP)); analysis of the forward-looking business environment; the relative strength of the pound sterling; and the overall lending cost-benefit trade off. Monetary institutions, including domestic and international banks and building societies, are less inclined to make funds available for lending to PNFCs if the perceived risk in the economy is high. Equally, demand for lending is likely to be lower if companies have uncertainties regarding short- and or long-term profitability. Business loans fund new start-up ventures, business expansion and acquisition activity, which tend to be more frequent when confidence in the domestic and global economy is high.
Lending to PNFCs accelerated exponentially and by double-digit growth year-on-year over the four-year period through 2008-09 as perceived buoyancy in the economy encouraged business activity, prompting banks to make credit available thusly. However, the credit crunch (i.e. a sudden reduction in the general availability of loans and a tightening of conditions required to obtain a loan from banks) took bite at the onset of the international banking crisis, causing business lending to plummet in 2009-10, by 5.5%, and continue to decline for six years subsequent. Economic downturn forced the preponderance of UK PNFCs to deleverage and improve their working capital management frameworks to reduce financial risk as large companies succumbed to exceptional debt across the economy. As deleveraging activity took hold, bond issuance increased indicative of some of the UK's largest companies issuing bonds to pay off bank debt.
Despite post-financial crisis downturn, to a certain extent, abating by the mid-2010s, the availability of credit remained low. While the decline in business lending in 2015-16 (1.4%) was, however, comparatively less profound than the sharpest decline (8.9% decline in 2010-11) since the new millennium, the financial crisis made it difficult for business banks, building societies and other corporate lending institutions to borrow money from wholesale funding markets, meaning that the formers had less liquidity and made less money available to businesses in the form of loans. Meanwhile, financial institutions' appetite for risk was negligible and lending to small- and medium-sized enterprises (SMEs) suffered in particular.
In 2016-17, business lending increased by 4% as the BoE announced additional measures to stimulate the UK economy in the wake of the UK electorate's vote to leave the European Union. For instance, in August 2016, UK interest rates were cut from 0.5% to 0.25% - a record low and the first cut since 2009 - and the BoE announced a £100 billion Term Funding Scheme. The scheme accelerated BoE lending directly to banks at rates close to the then new 0.25% base rate to encourage said banks to pass on the lower interest rates to businesses. However, citing record-low unemployment, rising inflation and stronger global economic growth, the BoE opted to raise the official bank rate from 0.25% to 0.5% in November 2017 - the first increase since July 2007 - which ultimately discourage businesses' propensity to borrow. Meanwhile, amid Brexit-related uncertainties, banks became increasingly cautious over lending to SMEs: SMEs are often regarded as being of a higher risk of default compared to larger businesses and banks became keen to de-risk their balance sheets ahead of a potential no-deal Brexit. Accordingly, business lending fell by 2% in 2017-18.
Despite prolonged Brexit-related uncertainties and the BoE's decision to raise interest rates to 0.75% in August 2018 - the highest level since 2009 amid fears of above-target inflation - bank lending surged by 9.5% in 2018-19. However, statisticians at the central bank noted that an upsurge in bank lending to PNFCs largely reflected a few sizable mergers and acquisitions involving UK companies during the year. Meanwhile, the BoE noted that, during January 2019, UK companies issued the highest amount of commercial paper (i.e. a form of short-term borrowing) since the BoE started compiling records in 2003, suggesting that British businesses were building stockpiles of goods ahead of "Brexit day" for which they required short-term funds to finance renting warehouse space or buying from their suppliers.
Consequently, moving through to 2019-20, these trends as the amount of outstanding loans to UK businesses increased by 2.9% during this year. A slight facilitator of the increase in business lending towards the end of 2019-20 would have been the global outbreak of COVID-19 (Coronavirus). First identified in December 2019, in Wuhan, Hubei province China, the coronavirus outbreak spread globally, with the domestic situation gaining momentum in February 2020 and worsening thereafter. In response to the outbreak the BoE announced an emergency cut to the official bank rate on 11 March 2020, from 0.75% to 0.25%, taking borrowing costs back down to the lowest level in history. Furthermore, just eight days later, on 19 March 2020, the BoE cut the official bank rate again, this time to a new record low of 0.1%, from 0.25%. In addition to this, the UK government has introduced a number of stimulatory measures intended to give a shot in the arm to the economy amidst prevalent disruption. For instance, Budget 2020, announced on 11 March 2020 by Chancellor Rishi Sunak, committed to the biggest rise in public borrowing for 30 years and an end to a decade of Conservative austerity, with public sector net investment set to rise from close to 2% of national income, to 3%. Furthermore, the Coronavirus Business Interruption Loan Scheme (CBILS) was introduced, which provides financial support to smaller businesses (SMEs) across the UK that were losing revenue, and seeing their cashflow disrupted, as a result of the coronavirus outbreak. As a result of the continuation of the coronavirus outbreak, business lending increased by 8% during 2020-21.
In 2021-22, a perfect storm of the economy reopening – domestic demand accelerated relative to the crux of the pandemic – and supply constraints, caused consumer prices to inflate, with the consumer price index (CPI) inflation rate standing at 5.5% as of February 2022, some 3.5 percentage points (pps) above the BoE's 2% target. In response to rising inflation, the BoE raised the official bank rate to 0.25%, 0.5% and 0.75% respectively in December 2021, February 2022 and March 2022. With raised rates, the cost of borrowing became more expensive and as a result business lending fell by 1.3% in 2021-22. In June 2022, the BoE raised the official bank rate even further to 1.25%. Inflation has since increased further, peaking at a four-decade high of 11.1% in October 2022. The BoE has also continued to raise rates to combat inflation, most recently raising the base rate to 3% in November 2022. Despite this, the total stock of lending has shown no signs of slowing down, reaching the highest level in 12 years during September 2022. As a result, IBISWorld projects that business lending will rise by 4% to reach £496 billion.
Over the five-year period through 2029-30, IBISWorld forecasts that the total stock of lending wi...
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