Lending to businesses forecast to slow to 3.5% this year

Following growth of 6.9% (net) in 2025, bank-to-business lending is forecast to slow to 3.5% (net growth) this year, as global and economic headwinds impact business confidence and reduce investment demand, according to the latest EY ITEM Club Bank Lending Forecast.

While falling interest rates helped boost business lending last year to the highest level since the pandemic, the current unpredictable trading environment is expected to weigh on investment appetite in 2026, leading to more modest growth. However, should the UK’s economic outlook improve as expected from 2027, business lending growth is also expected to regain momentum, rising to 4.5% (net) in 2027, and 4.9% (net) in 2028.

This one-year dip in business borrowing is reflected across wider bank lending and is in line with a forecasted deceleration in economic growth more generally. The UK economy is expected to grow only marginally this year, as geopolitical uncertainty, tariff disruption, and tightening fiscal policy impact growth levels. GDP is predicted to fall from 1.3% in 2025 to 0.9% this year, before returning to 1.3% in 2027.

As a result, total bank lending (across mortgages, consumer credit and business borrowing) is forecast to slow from 4.1% (net growth) in 2025 to 3.1% (net) in 2026. In line with GDP, bank lending is then expected to pick back up in 2027 and 2028, recovering from the 2026 dip, and growing steadily to 3.8% (net) and 4% (net) respectively, as the economy improves, confidence builds and businesses look to take advantage of continued healthy balance sheets.

Martina Keane, EY UK & Ireland Financial Services Leader, said “While geopolitical and macroeconomic challenges are dampening the outlook for corporate and consumer borrowing, slower growth is expected to be temporary, and an uptick is expected from 2027.

“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. Continuing to focus on AI scaling and governance, digital transformation, cyber-resilience, and climate-conscious growth will be key, and will help ensure firms are well-positioned to capitalise on positive momentum as the economy picks up and confidence strengthens.”