While there are many potential indicators of the improving state of ‘UK plc’ since the end of the previous coronavirus lockdown restrictions during 2021, one of the key ones might be the projected fall in net business borrowing over the course of this year.
As reported by Cambridge Network and elsewhere, it is predicted that net bank-to-business lending in the UK will drop to minus £1.6 billion over 2021.
This compares to the £35 billion net of corporate loans that were approved during 2020, in a sign that firms are paying down debt more quickly than had previously been anticipated.
The same forecast, however, also expects net bank lending to UK firms to go up again in 2022, recording growth of 2.4%, which would amount to £11 billion net.
Nonetheless, the picture shown by the last forecast is markedly different to the situation in May, when it was predicted that firms in the UK would borrow an additional £19 billion in net terms during 2021 to help keep them afloat during the corona-virus pandemic.
Businesses get serious about repaying debts and attending to their balance sheets
The total stock of business debt overall is primed for a 0.3% fall this year, which would be quite the contrast to the 8% increase seen during 2020.
However, data from the Bank of England suggests that larger companies and small-to-medium-sized enterprises (SMEs) have been paying down their debts at somewhat different rates.
While larger firms actually owed 2.4% less debt in October 2021 than they had in February 2020, just prior to the start of the pandemic – £312 billion versus £320 billion – SME debt over the same time frame went up by 26%, from £167 billion to £210 billion.
Looking forward to 2022, the forecast of business lending growing by 2.4% during the 12 months is based on the assumption of more ‘normal’ economic conditions being restored and firms turning their focus back to growth over the repayment of debt.
As far as business investment is concerned, 2021 has seen low activity, which points to a year-on-year decline of just over 1%.
However, with many firms that may contemplate investment now being in a relatively healthy financial position, it is thought that – as long as the Omicron variant of COVID-19 doesn’t drastically alter the economic picture – there could be a strong rebound in investment during 2022, amounting to nearly 14%.
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