UK business deals slowing further
• Fear of no-deal departure from EU a damper on companies as they delay decisions on spending and borrowing
Britain’s major banks have seen a growing number of business customers delay decisions on investments and borrowing in recent weeks, as the probability of a disorderly exit from the EU inches higher.
Britain’s major banks have seen a growing number of business customers delay decisions on investments and borrowing in recent weeks, as the probability of a disorderly exit from the EU inches higher.
Britain’s banks have largely played up the resilience of businesses since the June 2016 referendum decision to leave the EU, but senior executives say in recent weeks they have seen a dip in firms’ activity levels. The country’s largest lenders Royal Bank of Scotland (RBS), Lloyds, Barclays, HSBC, and Spain’s Santander are all set to publish half-year results in the coming weeks, with investors watching for signs of strain.
Bankers responsible for tens of billions of pounds in business debt say activity among corporate customers had fallen in recent months, as the two candidates to be Britain’s next prime minister have both said they are ready to take the UK out of the EU without a withdrawal deal.
“The world has changed a bit,” says one bank executive.
“There is a slowdown across the commercial piece. It started of with people holding off investment, now they’re just not transacting.”
An executive at a second bank said more big corporates were delaying investment decisions, with the conversion rate of the bank’s potential new commercial business pipeline falling from 70% to 50% in recent months, although lending to smaller firms was holding up.
The executives said they were preparing for a potentially disorderly Brexit, including refining “early warning” systems to identify struggling clients and spot possible weak links in their supply chains.
Frontrunner to be the next prime minister, Boris Johnson, has committed to Britain leaving the EU by the October 31 deadline with or without a deal, a concern for firms wishing for an orderly departure to avoid disruption to cross-border trade.
RBS, HSBC and Barclays have all taken multimillionpound provisions against potential future loan losses if the economy dips. The Bank of England has said lenders are resilient enough to cope with a no-deal Brexit.
Banks are also braced for an expected spike in costs for meeting claims for missold insurance known as PPI, already at more than £35bn, ahead of an August deadline for claims.
Britain’s economy grew more than expected in May, according to official statistics published last week, but economists warned that the outlook remained weak. Small businesses in Britain are planning the least investment in two years, a survey by the Federation of Small Businesses found earlier in July.
One bank executive said communication with business customers about potential Brexit disruption had been stepped back up after a lull following the extension of the original departure date from March 29.
This lender was trying to offer clients products to help, such as extending supplier financing and currency hedging, but said take-up had been slow.
The state-backed RBS has committed £5bn of its £6bn small business growth fund partly designed to help businesses out with Brexit although only a small proportion has been drawn down, a source familiar with the situation said.
RBS has contacted 15,000 businesses to assess their potential exposures, mapping risks across supply chains from big retailers such as Sainsbury’s and Tesco through to farmers and putting in extra credit lines where necessary.
The political impasse is frustrating lenders, who believe the Bank of England and the UK treasury are likely to step in to boost the economy if Britain does leave without a deal.
“I think there will be a raft of government and central bank measures to support the economy because they will be needed,” said Ian Smith, CFO at mid-sized lender CYBG.
Jeremy Hunt, Johnson’s rival for prime minister, has pledged a £6bn no-deal Brexit fund to help farmers and the fishing industry cope with fallout.
Although businesses are delaying big spending, this is creating pent-up demand, the executive at the second lender said. “You could get very positive Brexit bounce, because people know all the things that they want to do, but they’re just not pressing the buttons.”