Brexit uncertainty slows UK challenger bank lending to £115bn

The amount of cash UK challenger banks lent to small firms and consumers edged up last year, held back by ongoing Brexit uncertainty and an anaemic economy, according to information gathered by LearnBonds.

New banks like Revolut, Monzo and Atom lent £115bn in the UK in the 12 months to the end of September, up just 3% on a year ago.

This level of lending of the slowest rate of growth for six years, and falls short on the 19% leap between 2017 and 2018, according to data collected by accountants BDO.

Challenger, or app-only, banks were set up in the wake of the credit 2008 financial crisis to lend to consumers and under-served market segments like small businesses, after high street banks tighten their lending policies, fearing defaults.

This week the prime minister, Boris Johnson formally set out his vision for a trade deal with the European Union by the end of the year.

Johnson said there was “no need” for the UK to follow Brussels standards, instead calling for a Canada-style free trade deal, where import tariffs on most goods are eliminated, though there are still customs and VAT checks.

Last week, the Bank of England cut its growth forecast for the UK to 0.8% from 1.2% this year, warning that a rapid Brexit trade deal would hurt British productivity.

Last month, the government’s British Business Bank, which funds £7bn of loans and guarantees supporting over 91,000 new firms, told LearnBonds that a slowing economy was stunting the appetite for investment among small businesses.

Keith Morgan, the chief executive of the economic development body said, “The demand for finance is falling. There is a growing reluctance for small and medium-sized firms to take on new debt.”

The Bank of England wrote to chief executives of the UK’s 20 largest challenger banks last June ordering them to correct “overly optimistic” risk modelling amid an aggressive pursuit of growth.

LearnBonds news editor Roger Baird said, “Brexit is dead, long live Brexit. This set of data shows that until a trade deal is worked out between the EU and the UK small firms, in particular, prefer to finance spending from their own reserves. This, in turn, hurts new lenders who need to work their capital.”