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Disconnect between businesses’ appetite to borrow and political mood music

Daniel Bailey
inflation

The Bank of England’s figures reveal the stark disconnect between the political mood music on Brexit and businesses’ appetite to borrow. Contributor Daniel Bailey, Managing Director – Arkle Finance,

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December’s mini-breakthrough in Brexit negotiations prompted a rise in the Pound and an outbreak of optimism – even among Remainers – that Brexit might not be as bad as they’d feared. Yet on the business front line, that sentiment remains in short supply. Bank lending to businesses slumped by £1bn in December alone, and loans to SMEs shrank at the fastest rate for three years.

The reason is the profound sense of caution dominating businesses’ approach to growth. Even strong and successful companies are wary of taking on more debt to fuel further expansion. The impact of November’s increase in interest rates has yet to be fully felt, but the uptick in insolvencies recorded at the tail end of 2017 is a worrying sign of fragility.

In the current climate we’re seeing increasing numbers of businesses playing a waiting game – conserving cash reserves and seeking non-bank forms of funding such as asset finance rather than taking on conventional debt. Fortunately the conditions are a world away from those of a decade ago. Lenders’ willingness to lend has never been better, and while demand is there, it is heavily caveated.

“Many business borrowers are deeply cautious and seeking non-bank sources of finance, rather than tying up all their credit lines with the bank they use for day to day banking.”