New bank lending figures cast doubt on Chancellor’s growth strategy

London, 24 February 2025 - Annual change in bank lending to manufacturers fell for the fifth time in six years while lending to construction fell for the fourth consecutive year in 2024, pouring cold water on the government’s mission to get Britain building again, according to new analysis by research and campaign group Positive Money.

Bank lending to the unproductive financial, insurance and real estate (FIRE) sectors meanwhile soared. These sectors held almost three-quarters (73.3%) of all outstanding corporate credit as of December 2024. This translates to £677 billion, which dwarfs the £247 billion of total outstanding credit held by productive industries.

The four sectors which saw the highest growth in annual net lending were insurance and pension funds, consumer credit, real estate and mortgages - none of which are in the productive sector.

Mortgage lending now makes up 54.3% of overall lending by commercial banks, up from less than 40% around 2010. Outstanding lending to mortgages grew by £19 billion between December 2023 and December 2024, whilst outstanding credit held by productive sectors only grew by £1 billion over the same period.

The government has pledged to build 1.5 million homes over this Parliament - a mission that will require huge investment in the construction industry. Chancellor Rachel Reeves has also urged regulators to relax rules across the board in a bid to drive economic growth, a call the Financial Conduct Authority (FCA) responded to by exploring a loosening of mortgage lending rules introduced after the financial crash, which will likely drive mortgage lending, and thus house prices, higher. 

Alec Haglund, Senior Researcher at Positive Money and author of the research, said: 

“Banks create almost all of the new money in our economy, and therefore dictate which sectors thrive and which are neglected.

“In light of these findings, the Chancellor’s drive to deregulate the financial sector in a bid to drive economic growth is clearly misguided, because banks are already neglecting the sectors most likely to drive real economic growth, instead favouring safe bets on assets that already exist, such as houses, stocks and shares, which further inflates the prices of these. 

“This model of relying on asset-price inflation rather than growth in the real economy remains unchanged since the financial crisis, so the idea that banks have learned their lesson and deserve free rein is mistaken.”

Notes:

• Access the full research briefing here: https://www.datocms-assets.com/132494/1740414831-feb-2025-bank-lending-research-briefing-docx.pdf

• Government announcement on the FCA’s mortgage review plans: https://www.gov.uk/government/news/growth-boost-to-support-more-first-time-buyers 

• Analysis from real estate company Savills finds that the proposed relaxation of mortgage rules drive up house prices for first-time buyers in London by as much as £20,000 because of the increased demand they would create: https://www.telegraph.co.uk/business/2025/01/26/reeves-mortgage-overhaul-to-drive-up-first-time-buyer-house/ 

• The chief of the FCA, Nikhil Rathi, warned home repossessions could double under the new rules because many would not be able to manage the increased debt burden in hard times: https://www.independent.co.uk/news/business/fca-rachel-reeves-mortgages-lending-repossessions-b2685118.html