Business borrowing to soar in 2020
Borrowing at UK firms this year is expected to be more than five times higher than in 2019 due to the impact of Covid-19, according a report out today.
The latest EY Item Club financial services forecast also said most firms will only start repaying the debt – much of it provided under government schemes - and reducing their borrowing from 2022 onwards, provided pre-crisis economic conditions have returned.
Bank lending to households has also been significantly affected by the pandemic. Demand for consumer credit is predicted to fall by 5.6 per cent across 2020, the biggest decrease since 2011, and consumer confidence is likely to be affected further as new restrictions and local lockdowns are announced.
EY partner Omar Ali said: “Financial services firms entered the pandemic in a position of capital strength and have supported the economy and business to unprecedented levels since March.
"However, rising unemployment and the ongoing challenges faced by small businesses mean the outlook for the sector is testing. Insurers are facing multiple challenges this year, asset-managers are contending with a fall in assets under management and banks are facing squeezed interest margins, slow growth in consumer credit, and increased write-offs on loans.”
Meanwhile a poll has warned Covid-19 will worsen the UK’s north/south economic divide.
According to the survey by BDO, more than two thirds (68 per cent) of mid-sized businesses in Scotland believe that it will further widen the gap and more than a third (38 per cent) believe the pandemic will slow down progress in ambitions to level-up less prosperous regions with London.
Martin Bell, partner and head of tax for BDO in Scotland said: “To ensure the long-term economic recovery of the nations and regions, the UK government needs to take a local approach to supporting regional mid-sized businesses to navigate the months ahead. Because, to achieve the ambitious goal of ‘levelling up,’ it must be acknowledged that many businesses are facing unique trading conditions depending on their location.”
The poll also revealed the biggest concern for Scottish businesses is adapting their business for the impact of new local lockdown restrictions.
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