Growth in lending to UK businesses is expected to slow this year following strong expansion in 2025, according to the latest forecast from the EY ITEM Club.
Net lending to businesses grew by 6.9% in 2025, but is predicted to fall to around 3.5% in 2026, signaling a potential shift in borrowing demand influenced by global economic pressures and weaker investment confidence, which investors should monitor closely.
Analysts say the slowdown reflects a more cautious business environment driven by geopolitical uncertainty, potential trade disruption, and tighter fiscal conditions, which are key factors for policymakers and investors to consider in their strategic planning.
Last year’s lending growth was supported by falling interest rates, which encouraged borrowing and helped push business lending to its highest level since the pandemic.
However, the outlook for 2026 is more subdued. Firms are expected to scale back expansion plans and delay capital investment amid unpredictable trading conditions.
Despite the short-term slowdown, forecasts suggest borrowing activity will recover if economic conditions improve as expected over the medium term, which should reassure stakeholders about the resilience of the UK economy.
Business lending is projected to rebound to:
- 4.5% net growth in 2027
- 4.9% net growth in 2028
The recovery is expected to be supported by strengthening business confidence, improving macroeconomic stability and relatively strong corporate balance sheets.
The forecast suggests a wider deceleration across the UK financial system.
Total bank lending — including mortgages, consumer credit and business borrowing — is expected to fall from 4.1% net growth in 2025 to 3.1% in 2026.
Growth is then predicted to pick up again, reaching:
UK economic growth is also expected to soften in 2026.
- 2025 GDP growth: 1.3%
- 2026 forecast: 0.9%
- 2027 forecast: 1.3%
Forecast models suggest factors such as tariff uncertainty, geopolitical risk, and fiscal tightening are influencing near-term expansion, underscoring the importance of external risks for the audience’s understanding.
Economists say the one-year dip in borrowing reflects a typical cycle where firms delay investment during periods of uncertainty before returning to growth when conditions stabilise.
Healthy corporate balance sheets and improving macroeconomic signals are expected to underpin a renewed lending expansion from 2027 onwards, encouraging confidence in the sector’s resilience.
Martina Keane, EY UK & Ireland Financial Services Leader, said: “While geopolitical and macroeconomic challenges are dampening the outlook for corporate and consumer borrowing, slower growth is expected to be temporary, and an uptick is expected from 2027.
“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. Continuing to focus on AI scaling and governance, digital transformation, cyber-resilience, and climate-conscious growth will be key, and will help ensure firms are well-positioned to capitalise on positive momentum as the economy picks up and confidence strengthens.
Dan Cooper, EY UK & Ireland Head of Banking and Capital Markets, concluded: “While trading conditions are likely to be challenging this year for businesses both big and small, and the banks supporting them, it’s important to recognise that the outlook is still one of growth.
“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. The UK’s banks are well capitalised and increasingly resilient and, with a brighter outlook ahead, now is not the time for leaders to press pause on their strategic priorities.”
