Bank to business lending growth to halve amid global tensions
UK bank to businesses lending growth is forecast to halve this year as firms feel the pinch of challenging conditions amid global tensions.
Net growth in the value of lending from the banking sector to businesses is tipped to slow to 3.5 per cent this year, standing at nearly half of the 6.9 per cent increase in 2025, according to EY Item Club.
The Bank of England gradually began cutting interest rates from a post-financial crisis high of 5.25 per cent in August 2024, falling to lows of 3.75 per cent at the end of 2025.
The falling rates have given a boost to business lending, which clocked the highest level of lending last year since the pandemic.
But a flare up in geopolitical tensions and economic pressures are expected to take a chunk out of lending growth.
Dan Cooper, EY UK & Ireland head of banking and capital markets, said trading conditions were “likely to be challenging this year for businesses both big and small” as well as “the banks supporting them”.
Though he added the outlook “is still one of growth”.
“The pace of growth is set to pick back up from as early as 2027 as the UK economy strengthens, and all signs point to 2026 being a temporary dip, rather than a long-term slowdown,” Cooper said.
Bank to business lending to pick up with economic growth
EY anticipates the economy will marginally grow as geopolitical uncertainty, tariff disruption, and tightening fiscal policy impact growth levels.
President Donald Trump launched a fresh tariff salvo on global trading partners on Saturday following his previous levies being struck down by the US Supreme Court. The UK saw its rate increased by five per cent in the trade offensive, leading to businesses sounding the alarm.
But, should the UK’s economic growth prospects pick up, business lending is expected to follow suit.
The economic forecaster said the 2026 slump would likely serve as a “temporary” dip before conditions pick up in 2027, with net business lending expected to rise 4.5 per cent next year and 4.8 per cent in 2028.
Martina Keane, EY UK & Ireland financial services leader, said: “In today’s inherently unpredictable trading environment, waiting for stability is not an option, and given the brighter horizon ahead, a one-year dip in lending growth shouldn’t deter banks from progressing longer-term strategies.”