This strength was driven by an increase in businesses’ net bond issuance to £11 billion in May, the largest net monthly issuance on record. As with the previous peak in July 2017, this month’s increase was driven by a number of large deals related to M&A activity. According to the Bank’s network of Agents, UK-based professional services firms reported an increase in demand for M&A advice from overseas clients.2 This suggests upcoming M&A activity may continue to increase businesses’ demand for finance in the future.
Contrasting the strength in bond issuance this month, the annual growth of businesses’ borrowing from banks has slowed to 0.9%, reflecting slowing in lending growth to both large businesses and - to a lesser extent - small and medium enterprises (SMEs) (Chart 3). The annual growth rate of net lending to SMEs was negative for the first time since mid-2015 at -0.1%; the 12-month growth rate of net lending to large businesses ticked down to 1.5%. The latter is partly a mechanical effect as strong flows in May 2017 dropped out of the 12 months in scope, but also reflects recent weakness in net lending. Within lending to large businesses, the public services industry was particularly weak, and has been the main contributor to the volatility in the past three months.
Chart 3: Loans to non-financial businesses