What a dynamic lending landscape reveals about UK business prospects

Turbulence was the norm in the first half of 2025. Geopolitical shocks continued, from war in Europe and the Middle East to the introduction of significant barriers on global trade. At home, businesses braced for rising costs and taxes; economic growth was modest at best.

Yet loan activity – the key lever for business growth and expansion – leapt up in early 2025, albeit from a relatively low base, whilst pricing has held firm. While the impacts of external shocks are clear, and some sectors face specific pressures, the overall picture is one of steadily rising investment and hardening confidence. That’s certainly reflected in the activity we’re supporting for our own clients – and our success in attracting new business – with June an especially busy month.

In part, the growth in lending is attributable to a macroeconomic backdrop that continues to favour debt over equity. While interest rates have fallen by 75 basis points since August 2024, to 4.25%, five-year gilt yields remain just above 4%. This anchors all-in funding costs at levels unseen since the mid-2010s.

Economic growth remains sluggish, with the Bank of England now projecting real GDP growth of just 0.8% through 2025.¹ Combined with sticky core inflation, one effect is to encourage borrowers to lock-in before spreads turn, or the cycle slows further.

As we have seen reference rates come down and the terminal rate stabilise, this has tempered the incremental cost of bank finance versus alternative financing sources. When combined with a more supportive outlook for business performance and in turn greater conviction to underwrite transactions, this has also led to UK banks maintaining stronger market share of opportunities through 2024 and into 2025.

In the first half of the year, UK loan volumes reached 65% of the full year total for 2024, with volumes up 66% year on year thus far, according to Loanconnector data. The uncertainty over tariff impacts duly hit second-quarter lending growth, which was less impressive yet still positive. Progress since April suggests businesses are more confident that they can adapt to the shifting global trade backdrop.

Refinancings made up the vast bulk of total activity, with core loan volumes remaining relatively slow. However, there are fresh signs that companies of all sizes are looking to expand.

Large corporates’ bank borrowing accelerated to 5.8% growth in April.² And SMEs are steadily escaping the drag of the pandemic: the SME credit market has now been improving month on month for over a year, and the government’s expanded Growth Guarantee Scheme saw lending to the smallest companies jump by 30% year on year in the first quarter.

Meanwhile, business investment is healthy too, starting 2025 with its fastest quarterly growth in two years. Investment rose 8.1% year on year,³ powered by tax incentives, lower rates and a catch-up in transport and tech spending. The activity was also likely inflated by ‘front-loading’ ahead of the anticipated US tariff announcements.

Much of the new spend is on tech, including AI and automation solutions that will support productivity and new ways of working. Manufacturers and healthcare businesses have been especially active here.

The picture is uneven: businesses with big workforces in sectors such as retail and leisure, for example, are still contending with increased employee costs. That said, the sector remains a benefactor of consumer confidence – retail trade and food and beverage were amongst the few growth contributors to an overall decline in services GDP in April⁴. Overall, we expect to see investment momentum persist in the second half of 2025.

Within HSBC UK, we have first-hand evidence of high-activity markets such as infrastructure. Our teams have advised on debt funding for two UK airports over the past few weeks: one transaction is to fund expansion, the other a refinancing of core debt. Hospitality, higher education, care homes and industrial clients have also been actively seeking finance.

Overall M&A levels have been subdued, but there is clear pent-up demand in the UK market. Wingstop’s recent sale reflects a dynamic scene around major consumer franchises; our teams are currently working on a transaction for another major fast food franchise.

At the same time, take-private deals are at an all-time high, with undervalued UK companies very much in play for overseas investors. By June, there had already been 30 cash or cash-and-stock offers above £100m, on course to beat 2024’s final tally of 45 deals.⁵

The lending requirements of businesses are evolving too. We’ve noted an increase in risk appetite among clients, and we are becoming more creative in the way we craft transactions to best support the needs of each business. HSBC UK supports the highest number of multi-bank lending transactions,⁶ and is increasingly active in export finance and private credit collaborations.

This product-agnostic approach, combined with our specialist expertise, delivers powerfully for our clients’ ambitions, whether supporting big corporates in M&A, syndicated deals or providing early-stage companies with their first lending facilities. The regional expertise of our UK-wide corporate financing team is complemented by the extensive global network of an international bank with a presence in more than 50 markets.