U.K. Firms’ Borrowing to Jump Five-Fold in 2020 on Pandemic Pain

(Bloomberg) -- U.K. firms will increase their net borrowings from banks this year by five-fold and many are unlikely to start reducing this debt until 2022, according to consultancy EY.

Net bank lending to non-financial companies climbed to 43.2 billion pounds ($56 billion) between January and August, compared to 8.8 billion pounds for the whole of 2019 as firms borrowed heavily to navigate pandemic uncertainty, according to the EY ITEM Club for Financial Services.

Total business loans are expected to rise 11% to 493 billion pounds this year, compared to a 2% rise last year and an average decline of 1.4% from 2010 to 2019. That contrasts with consumer credit, which is set end the year down 5% to 212 billion pounds.

“The ongoing financial impact of the pandemic is likely to be felt for some time, particularly as more restrictions and local lockdowns come into force,” said Dan Cooper, U.K. head of banking at EY. “Businesses are operating under increasing pressure, relying more heavily on bank lending than ever before, while on the flip side, consumers are sitting tight and borrowing far less than would normally be expected.”

The ITEM Club predicts that firms won’t start to repay debt and reduce their borrowing until 2022, or even later if local lockdowns materially delay a return to more normal economic conditions.

©2020 Bloomberg L.P.