The EY Item Club has stated that banks’ lending to businesses is set to rise for the first time since 2008.
The amount being lent by banks hit a peak of £575 billion back in 2008 but continuously fell for many years after that. Lending levels went up by £4.3 billion in the first five months of this year, indicating a year on year rise according to the economic group.
This only represents a growth of 0.25% however.
“With the economy growing at a steady pace and business investment set to rise at an annual average of 6.5% over the next three years, the forecast suggests that the days of lending contraction are in the past,” said the group.
The group is predicting that mortgage lending will go up by 3.8%, on average, each year from now until 2019. This is still a slower rate than before the economic crisis but represents more than double the rate that it was at between 2010 and 2014.
Senior economic advisor to the EY Item Club, stated:
“With homeowners set for the sixth year running of historically low borrowing costs, the demand for mortgages should continue to grow healthily, albeit at a far from spectacular pace.
“But while a low interest rate environment is good news for consumers, the prospect of a further year of squeezed interest margins is not what the banks were hoping for.”
EY UK head of banking and capitals market, Omar Ali, said:
“Consumer credit finally turned the corner in 2014, and now business lending will hopefully follow suit.”
“The rising demand from businesses for new loans is good news for the banks, but the June drop in net lending shows how vulnerable they are to bigger businesses, with access to alternative sources of finance such as bonds, paying off overdrafts in preparation for rising interest rates.”
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