Business lending growth forcasted to halve this year

Business lending growth is forecast to more than halve from 5.3% last year to 2.1% this year, then rise modestly to 2.8% in 2027, according to a new EY UK Bank Lending Outlook analysis.

Higher costs and economic uncertainty weigh on investment demand. From 2027, stronger spending on AI and wider digital technology is expected to support an uptick in business lending growth to 2.8%, before rising again to 3.9% in 2028.

Growth in UK bank lending to households and businesses is forecast to slow markedly over the next two years, from 3.6% in 2025 to 2.9% this year, and to a three-year low of 2.2% in 2027. The forecast comes amid renewed tensions in the Middle East, and with higher energy costs and weaker economic activity weighing on demand.

Business borrowing has remained subdued since its historical peak in 2008, reflecting a long-term shift in the lending market since the global financial crisis. Despite a significant slowdown this year, the central forecast expects an average growth rate of 2% – 4% over the next five years, above the average over the previous decade (2015-2025), as continued business investment appetite keeps credit demand healthy.

Martina Keane, EY UK & Ireland Financial Services Leader, said “Ongoing geopolitical tensions continue to create uncertainty for businesses in the UK. While the bank lending forecast reflects the impact of global economic challenges, it is important to keep this in perspective, with growth still set to continue across all major categories. The UK banking sector remains resilient and well-positioned to navigate this period of slower activity and banking leaders should remain focused on the longer-term picture, while being ready to adapt quickly should conditions change.

“At the same time, prolonged economic uncertainty means changing customer needs – households may look for greater financial flexibility, while businesses often take a more targeted approach to investment. As banks support customers through these near-term pressures, those who continue to invest in AI, emerging technology and broader transformation programmes to tailor their services will be best positioned to capitalise on future opportunities as the economy strengthens.”