Bank borrowing less attractive than at any point since financial crisis, say major UK firms
Credit has become more expensive than any time since the 2008 crash, Deloitte’s survey of chief financial officers (CFOs) in December found, with 70 per cent of respondents saying it was costly. It comes after the Bank of England voted to raise interest rates to 3.5 per cent in October, the highest level since October 2008 and a significant hike from the 0.1 per cent base rate in place in March 2020, before the pandemic struck.
Deloitte found that just over a quarter of finance chiefs said they expected their company’s demand for credit to increase over this year, despite a majority admitting they plan to cut non-essential spending and slow hiring across the business.
The regular survey – which included 17 financial officers in the FTSE 100 and 32 at FTSE 250-listed companies last month, amounting to UK-listed firms with a combined value of £363bn – found businesses are feeling slightly more optimistic about inflation in Britain.
Concerns over supply chain disruptions, labour shortages and the prospect of higher interest rates eased, while worries over energy prices and supply significantly reduced since the peak in October. On average, finance chiefs believe inflation will fall sharply from its current level of 10.7 per cent, to 5.8 per cent in a year’s time.
Ian Stewart, chief economist at Deloitte, said: “The most aggressive tightening of monetary policy in more than 30 years is reshaping corporate attitudes to debt.
“Not since the credit crunch have CFOs rated debt as being less attractive as a source of finance for their businesses than they do today.
“In the last two years, CFOs have had to deal with the biggest inflationary shock since the late 1980s.
“But the tide seems to be turning and concerns about energy supply and prices have fallen back.”
Furthermore, a vast majority of those surveyed said they expect higher investment in workforce skills, digital technology and assets over the next three years, suggesting a more optimistic sentiment over medium-term improvements within their business.
A recent report suggested that more than eight million UK adults are “financially fragile” and at risk of being over-stretched due to record levels of unsecured debt and rising interest rates.
Data by accountancy giant PwC and credit app TotallyMoney found that 8.9m adults are showing signs that their finances are teetering on the brink, meaning that they may need to use their overdraft to cover everyday spending and essentials, such as the food shop.
They may also struggle to keep up with repayments on their borrowing this year.
The study estimates that unsecured debt, such as personal loans, now stands at more than £400bn, which equates to a record high of £16,200 for each UK household.
This, with rising interest rates, is leaving household finances worryingly vulnerable, according to the research.