UK SME borrowing and consumer credit slows in August
GROWTH in small business borrowing slowed in August, as demand for consumer credit dipped to £900m, new figures from the Bank of England (BoE) have shown.
Borrowing by small- and medium-sized enterprises (SMEs) weakened to 0.7 per cent growth, according to the latest BoE Money and Credit Report.
Despite this, the growth rate of borrowing from large businesses rose to 4.4 per cent.
Net finance raised by UK businesses rose by £2.4bn in August, up from £2.3bn of net repayments in July.
The increase was driven by a £1.5bn net increase in borrowing from banks, leading to an increase of the annual growth rate to 3.1 per cent
“The same old narrative is playing out,” Michael Biemann, chief exec of the digital property lender, Selina Finance said. “Big business borrowing rates are up while those of SMEs are down.
“In the current climate, high street banks are gravitating to blue chip businesses, which they see as less of a risk. It’s no wonder that a growing percentage of SMEs, believing they are likely to be knocked back, are turning to alternative sources of finance.”
Read more: Consumer credit grows by £900m while mortgage approvals hit two-year high
The central bank also recorded a dip in demand for consumer credit in August, with borrowing dropping below the £1bn average for the first time since July 2018. Yet despite the drop in demand, borrowers are continuing to use unsecured forms of borrowing as economic uncertainty and a higher cost of living impact household finances.
The annual growth rate of consumer credit is 5.4 per cent despite the fall recorded in August – the lowest level since February 2014.
Net credit card borrowing weakened to £200m, the lowest since December 2018. Net borrowing for other loans and advances remained at £700m.
“Although the growth of consumer credit is slowing down, borrowers are continuing to turn to unsecured forms of borrowing when in need of financial help,” said Dave Harris, chief exec at equity release lender, more2life.
“Economic uncertainty and a higher cost of living are clearly having a knock-on effect on the finances of households across the country. This includes older generations who face longer and more active retirements, but with lower pension pots than their predecessors.”
Harris pointed to recent research that shows over a fifth (22 per cent) of the over-55s say they currently have credit card debt, and 29 per cent said they had borrowed to help cover their everyday expenses.
Read more: BoE notes weak demand for business finance
Mortgage approvals also fell in August, dropping to 65,500 – down from the 18-month high of 67,000 seen in July. However mortgage approvals remained within the narrow range seen in recent years, the BOE said.
Net mortgage borrowing weakened to £3.9bn last month after a stronger net flow of £4.5bn in July. The annual growth rate was unchanged at 3.2 per cent, in line with the growth rates of the past three years.
“We have seen a downturn of lending in August, which may be in part led by the continued political uncertainty and the heightened chance of a no deal Brexit,” said Rob Barnard, sales director at Masthaven. “However, despite the fall in net mortgage borrowing, the appetite for purchasing property has remained relatively strong keeping in line with the average seen since 2016.
“It seems that by and large, the market is not too concerned with the political turmoil of late,” added Barnard. “The UK is still a desirable place to own a property and lenders are innovating to ease the application process for mortgages to deliver excellent customer service, paving the way for specialist banking to become the new norm.”
Read more: Growth Street: BoE rate hold could drive people to P2P
