How the latest Government budget has affected the market

After our feature last month on what the Spring Budget means for small businesses, we thought we would provide an update on the trends we are seeing in the market and how that might impact small business finance.

What’s the economic situation right now? 

As Jeremy Hunt called out in his Spring Statement, growth forecasts for the UK have improved since the back end of last year. Nevertheless, the outlook remains uncertain. Although below its peak, inflation remains elevated, and the IMF predicts that the UK economy will shrink by -0.3% – the weakest performance in the G7 economies.

CPIH and CPI inflation rates from Feb 2013 to Feb 2023: 

This rise in costs continues to create challenges for small businesses, and the Bank of England Credit Condition survey indicates a drop in demand from small businesses for Finance in Q1. Nevertheless, we at Funding Circle continue to be inspired by how small businesses take finance to adapt their model, pivot to new areas and support their staff. 

As our recent Resilience in Small Business report highlights, small businesses are a resilient bunch, and indeed we continue to see strong demand from businesses for finance as demonstrated by Google Search trends.

Google Search trends over the past 12 months: 

How does all this affect prices?

To fight inflation, banks around the world – including the Bank of England – have been increasing their base interest rate, which effectively makes it more expensive for people to borrow money and leads people to save. This in turn creates less demand for goods, and therefore lowers inflation.

As we explained in detail in our November newsletter, the cost of Funding Circle loans are determined by future expectations of interest rates, or more specifically SONIA (Sterling Overnight Index Average) swap rates. This means, as we saw when we reduced prices in January, our prices don’t typically increase with every Bank Of England interest rise. We typically adjust our prices when expectations of the future base rate changes, which happens with volatility or unexpected events. 

This continues to be a time of unprecedented uncertainty – with some calling for a pause to rising interest rates post the demise of Silicon Valley Bank and Credit Suisse, while others are calling for Central Banks to continue raising interest rates to fight inflation. We’re therefore not going to try and predict the future and say where prices will go next. 

However, we remain committed to saying yes to more borrowers and helping your clients get the funding they need. 

If you have any questions about this your BDM will be happy to help, or you can contact us on broker@fundingcircle.com.