Business Lending Growth Forecast to Halve in 2026 Amid Global Tensions
The growth of bank lending to businesses in the United Kingdom is projected to slow dramatically this year, with forecasts indicating it will drop to nearly half of last year's rate. This deceleration comes as companies grapple with increasingly challenging conditions fueled by rising global tensions and economic pressures.
Sharp Decline in Lending Growth Projected
According to the latest analysis from the EY Item Club, net growth in the value of lending from the banking sector to businesses is expected to slow to just 3.5 percent in 2026. This represents a significant decline from the 6.9 percent increase recorded in 2025, marking one of the most substantial year-over-year drops in recent business lending history.
The forecast highlights how geopolitical uncertainties and tariff disruptions are beginning to impact corporate borrowing patterns across the UK economy.
Interest Rate Cuts Previously Boosted Lending
Bank lending to businesses had experienced a notable boost in recent years, largely driven by falling interest rates. The Bank of England began gradually reducing rates from a post-financial crisis high of 5.25 percent in August 2024, with rates falling to lows of 3.75 percent by the end of 2025.
This monetary policy environment helped fuel business lending to its highest levels since the pandemic, providing companies with more accessible capital for expansion and operations. However, the current economic landscape presents new challenges that are expected to constrain this growth trajectory.
Geopolitical Factors Creating Business Uncertainty
Dan Cooper, EY UK & Ireland head of banking and capital markets, emphasized that trading conditions are "likely to be challenging this year for businesses both big and small" as well as for "the banks supporting them."
The recent escalation in global trade tensions has contributed significantly to this uncertainty. President Donald Trump launched a fresh tariff offensive against global trading partners on Saturday, following previous levies being struck down by the US Supreme Court. The UK saw its rates increased by five percent in this trade offensive, prompting immediate concern from business leaders across multiple sectors.
Cooper noted that despite these challenges, the overall outlook "is still one of growth," suggesting that the current slowdown represents a temporary adjustment rather than a fundamental shift in lending patterns.
Temporary Dip Expected Before Recovery
EY anticipates that the 2026 lending slowdown will prove to be a temporary phenomenon, with growth expected to rebound as early as 2027 as the UK economy strengthens. The economic forecaster projects net business lending will rise by 4.5 percent in 2027 and 4.8 percent in 2028, indicating a return to more robust growth patterns.
"The pace of growth is set to pick back up from as early as 2027 as the UK economy strengthens, and all signs point to 2026 being a temporary dip, rather than a long-term slowdown," Cooper explained.
Strategic Perspective from Financial Leaders
Martina Keane, EY UK & Ireland financial services leader, offered strategic advice for financial institutions navigating this uncertain period: "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."
This perspective underscores the importance of maintaining strategic focus despite short-term fluctuations in lending patterns. Financial institutions are encouraged to continue developing their capabilities and service offerings, positioning themselves for the anticipated recovery in business lending activity.
Economic Context and Future Outlook
EY anticipates the UK economy will experience marginal growth in 2026, though geopolitical uncertainty, tariff disruption, and tightening fiscal policy are expected to impact overall growth levels. Should the UK's economic growth prospects improve as projected, business lending is expected to follow suit, creating a positive correlation between economic performance and corporate borrowing activity.
The forecast suggests that while 2026 presents significant challenges for business lending, the fundamental drivers of corporate borrowing remain intact, setting the stage for recovery in subsequent years as economic conditions stabilize and global tensions potentially ease.
