High street banks’ return to small business lending slowed in the third quarter of 2025 after the chaos on the road to the Autumn Budget dampened activity in the economy.
Big banks dished out nearly £4.2bn in total loans to small and medium-sized enterprises (SMEs) in the three months to 30 September – a level above the 2023 and 2024 average, according to a fresh report from UK Finance.
But the pace at which SME lending grew eased significantly at just 6.4 per cent year-on-year in the third quarter, compared with 8.3 per cent in the second quarter, and 14 per cent in the first. This also marked the slowest rate since the banks’ comeback to the area began at the start of 2024.
Britain’s banking giants have been tasked to take up the mantle of supercharging economic growth through bolstering SME lending.
It follows a report from the Department of Business and Trade in March revealing overall loan success rates for firms applying for bank finance were below 50 per cent – down from an approval rate of 67 per cent in 2018.
Top bosses were summoned earlier this year for talks with ministers covering how to improve lending to SMEs.
Budget hampers lending growth
The weaker pace in the third quarter was driven by muted growth in lending to medium-sized business, which was broadly flat. Meanwhile, for the UK’s smallest firms, it was 15 per cent higher.
The UK Finance paper also revealed tax anxiety ahead of Labour’s second Autumn Budget had weighed on business activity.
UK Finance noted a “wobble in already subdued business sentiment in the run up to the Budget” which the group added was “likely linked to concerns that businesses would again be called upon to plug a hole in the public finances.”
“Taken together, the environment for planning future growth, investment, and taking on new or additional finance has become less supportive,” it added.
The banking industry body noted concern among SMEs regrading the economic climate “had surpassed the 2020 average and was nearly equalled by those concerned by political uncertainty and future government policy”.
Banks were spared from a tax raid as Rachel Reeves unveiled a £26bn cash grab across landlords, the wealthy and bookies on November 26.
In the days that followed the news, banks announced hefty new investments across the UK including £35bn of new finance for business from Lloyds Banking Group and Barclays pledging £45bn to “boost support to UK businesses and consumers”.
Gary Greenwood, equity analyst at Shore Capital, said: “The Chancellor will likely want to see the banks pursuing more aggressive lending policies in order to support economic growth.
“Failure to do so could see this reprieve revisited.”
