Stock image of London city skyscape, via PA, July 2020Stock image of London city skyscape, via PA, July 2020

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Number of British businesses forced into debt reaches 13-year high

Time 9 months ago

UK businesses are more in debt than at any point for the last 13 years, new figures show.

The research comes from the forecasting group EY Item Club which also predicts business lending is set to grow by 14.4 per cent this year, up from a two per cent increase in 2019 and a 1.4 per cent average decrease between 2010 and 2019.

The group said that government-backed loans have been ‘crucial’ in propping up British businesses throughout the coronavirus pandemic, but it may take until 2022 before firms can pay back cash.

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EY Item Club also noted that while the banks needed bailing out in the 2008 financial crash, it’s the banks bailing out businesses this time around with over £30bn handed out in March alone – about 100 times usual amounts.

Meanwhile, the number of loans to individuals have plummeted and the demand for consumer credit will fall 15.9 per cent, according to the group’s predictions.

It would be the biggest annual drop since 1993, when records began.

Mortgage lending will rise by 2.6 per cent this year, the slowest growth since 2015.

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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.’

Dan Cooper, UK head of banking at EY, added: ‘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.

‘However, the banks went into this crisis well capitalised and, despite the level of contraction in GDP this year, which the OBR says is likely to be the biggest decline for 300 years, they have extended significant levels of support to businesses and consumers and are continuing to help drive the economic recovery.’

James Batchelor's avatar

James – or Batch as he’s known – started at Car Dealer in 2010, first as the work experience boy, eventually becoming editor in 2013. He worked for Auto Express as editor-at-large and was the face of Carbuyer’s YouTube reviews. In 2020, he went freelance and now writes for a number of national titles and contributes regularly to Car Dealer.

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