UK bank lending is not about to fall off a cliff, but it is slowing, and the direction of travel matters. New analysis from EY forecasts that growth in bank lending will slip to a three-year low by 2027, cooling from 3.6 per cent in 2025 to 2.9 per cent in 2026 and 2.2 per cent the year after. Lending is still growing, in other words, just more slowly, and the part of the market that carries UK business feels that slowdown first.
The figures are a forecast, not a verdict, and EY is careful to keep them in perspective. But for small and medium-sized businesses, the softening comes at an awkward moment, with costs already high and confidence already fragile. Our own Alex Fenton, a partner at FBX Capital, responded to the EY analysis. His reading goes beyond the numbers to what a cautious lending market does to a business trying to plan.
This article draws on analysis published by The Intermediary, including comment from FBX Capital's Alex Fenton. You can read the original here: Bank lending growth to hit three-year low in 2027, EY says.
The headline figure masks an uneven picture. Mortgage lending is the one category EY expects to grow faster in 2026. Corporate lending is forecast to go the other way, with its growth rate more than halving from 5.3 per cent in 2025 to 2.1 per cent in 2026, before a modest recovery. In short, the pull-back is concentrated on exactly the lending that funds business investment and growth.
For Alex, the trend itself was no shock. "It is no surprise that UK lending growth is heading for a three-year low," he said. The surprise, if there is one, is how directly a slower lending market feeds into the decisions a business is able to make.
A slower lending market is not only about harder-to-get credit. It is about the room a business has to plan, and that is where Alex focused.
"For SMEs, continued uncertainty leaves less room to absorb rising costs or take advantage of growth opportunities, making it harder to plan with confidence. That loss of confidence has a direct impact on growth."
This is the chain that a headline growth rate does not capture. When borrowing is harder to secure, and the outlook is unclear, a business holds back. The hire is delayed, the new line is shelved, the acquisition is passed up. The cost is not only the funding not drawn, but the growth not attempted.
Alex was pointed about the wider environment, and about the gap between political language and what businesses feel on the ground. With a Budget approaching, his call was for clarity rather than another round of uncertainty.
"Ministers can talk about backing small businesses, but firms cannot expand while they are being squeezed by higher costs and unclear policy. If firms do not have the confidence to borrow and invest, expansion stalls and ultimately fewer jobs are created. That is not a sustainable environment for British business."
It is a reminder that the funding environment is not set by lenders alone. Cost pressure and policy uncertainty shape whether a business feels able to use the finance available to it, however the lending figures move.
It is worth holding the forecast in proportion, as EY itself urges. Lending growth is slowing, not reversing, and credit is still expanding across the major categories. Martina Keane, EY's UK and Ireland financial services leader, framed it as a resilient sector navigating a period of slower activity rather than a market in retreat.
For a business, that proportion is useful. The finance is still there to be had. What changes in a slower, more cautious market is that it becomes more selective and harder to reach. That places a higher premium on knowing where to look and how to present a business well.
A three-year low in lending growth is a signal, not a cliff edge. Credit is still flowing, but the market is cooling and turning more cautious. The businesses that fare best in that environment are the ones that plan ahead and understand their options, rather than waiting for conditions to ease.
That is where the funding side rewards attention. In a more selective market, the difference between a business that secures what it needs and one that stalls is often not the headline rate. It is the preparation:
Confidence, as Alex argues, is the thing a slowdown erodes. For an SME, the surest way to protect it is to understand the funding options in front of you before you need them.