UK business lending growth is projected to halve this year as companies face challenging conditions amid global tensions. According to the EY Item Club, net growth in lending from the banking sector to businesses is expected to slow to 3.5% in 2024, nearly half of the 6.9% increase anticipated in 2025.
The Bank of England began cutting interest rates from a post-financial crisis high of 5.25% in August 2024, reaching lows of 3.75% by the end of 2025. These falling rates have boosted business lending, which reached its highest level since the pandemic last year. However, geopolitical tensions and economic pressures are expected to significantly impact lending growth.
Dan Cooper, EY UK & Ireland head of banking and capital markets, noted that trading conditions are likely to be challenging this year for businesses of all sizes and the banks supporting them. Nonetheless, he maintained that the outlook remains one of growth. Cooper stated that the pace of growth is set to recover from as early as 2027 as the UK economy strengthens, suggesting that 2026 will be a temporary dip rather than a long-term slowdown.
EY anticipates marginal economic growth as geopolitical uncertainty, tariff disruption, and tightening fiscal policy impact growth levels. On Saturday, President Donald Trump launched a fresh tariff salvo on global trading partners following previous levies being overruled by the US Supreme Court. The UK’s rate was increased by 5% in this trade offensive, prompting businesses to raise concerns.
Should the UK’s economic growth prospects improve, business lending is expected to follow suit. The economic forecaster predicts that the 2026 slump will likely be temporary, with conditions improving in 2027. Net business lending is expected to rise by 4.5% in 2027 and 4.8% in 2028.
Martina Keane, EY UK & Ireland financial services leader, commented that in today’s inherently unpredictable trading environment, waiting for stability is not an option. Given the brighter horizon ahead, a one-year dip in lending growth should not deter banks from pursuing longer-term strategies.
