UK firms less likely to borrow than at any time since financial crash

The UK’s leading companies are less inclined to borrow now than at any point since the financial crisis of 2008, a survey of directors has found.

Demand for credit is flagging among chief financial officers, with barely a quarter of those polled at FTSE 100 and FTSE 250 companies expecting to increase borrowing in the next year.

The quarterly survey by the accountancy firm Deloitte found CFOs now more reluctant to borrow from banks or issue debt than they had been since 2008. With the Bank of England having raised interest rates to 3.5%, about 70% of those questioned now rate credit as costly, and almost half said that new credit was hard to get.

Despite a turbulent year of rising inflation and supply chain disruption on top of rising interest rates, not all the sentiment among the businesses – including more than 50 UK-listed companies – was negative.

Deloitte found that the perception of external risks to businesses, particularly inflation, had eased since peaking earlier this year. Fears of disruption in supply chains, of labour shortages and even higher interest rates have also abated slightly, along with concern over energy prices that had soared since Russia’s invasion of Ukraine.

Only one in 10 CFOs said they expected significant supply disruption by 2024 – the most positive result for 18 months. Most expected inflation to fall sharply to just over 5% in a year.

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.

“When interest rates were at very low levels, debt finance easily eclipsed equity as a source of finance. CFOs now see them as being roughly on par.”

Although inflation in the last two years has surged to rates not seen for decades in the UK, Stewart said that the tide was turning, with a concomitant fall in concern over energy supply and prices.

He added: “CFOs’ perceptions of inflation risk have dropped from October’s peak and expectations for supply shortages, recruitment difficulties and inflation have eased.”