Recession hits firms’ ability to pay back debts

Tim Wallace
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MORE companies will fail to pay back loans now Britain is in recession, Ernst and Young economists forecast this morning, warning the corporate loans market will only return to pre-crisis levels in 2016.

Lending to firms is expected to fall 6.8 per cent this year to £419bn, following last year’s 6.1 per cent drop as banks continue to face lower earnings for lending and a deterioration in loan quality.

That deterioration is underlined by a forecast 1.9 per cent rise in write-offs, focused in areas outside southern England, where Ernst and young expects the economy to be weakest.

However, the renewed recession is not the only problem – the report also warns that regulatory capital requirements are holding back lending, and that in any case, many firms have built up large cash surpluses and so may not need to borrow to expand when the economy recovers.

Meanwhile the analysts predict a 7.6 per cent fall in consumer credit to £109bn following 2011’s seven per cent drop, with mortgage lending remaining sluggish.