UK Business Lending Set to Rise, says E&Y Item Club

Improved credit conditions and a lower level of bad debts will spur the first rise in UK business lending in four years, according to the Ernst & Young (E&Y) Item Club.

The non-governmental economic forecasting body expects lending to UK companies to rise 3% to £440bn this year, after a 5% fall to £427bn in 2012. E&Y expects the rise in lending to continue into 2014, when it pencils in an 8.5% increase to £477bn in 2014.

The Item Club also predicts that improving credit conditions and economic growth will cut bad debt write-downs to £9.3bn or 0.56% of total loans this year, from £11.6bn in 2012.

“Behind the scenes, banking fundamentals have quietly been improving and banks are now in a better position to be able to provide funds to the wider economy,” said Andy Baldwin, head of financial services in Europe at E&Y.

However, he added that E&Y does not expect the UK government’s
funding for lending (FLS) scheme
, which last week was extended by 12 months to January 2015, to make a material difference to the increase in lending.

“Our analysis suggests the main drivers of banks’ return to lending will be better access to wholesale funding and a decrease in non-performing loans, rather than the FLS scheme making a material difference” said Baldwin.

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