Rachel Reeves’ efforts to turbocharge Britain’s sluggish economy have been dealt another blow as bank lending to businesses plummeted to its lowest level for almost three decades. New research from Boston Consulting Group showed British banks’ loans to companies outside of finance fell to 59% of UK gross domestic product (GDP) in the third quarter of last year. This compares to a 2008 peak of roughly 90% of GDP.

Other reported figures showed small and medium-sized (SME) businesses have been particularly affected. Bank of England data suggested loans to SMEs have nearly halved in 15 years, falling from 12% of GDP in 2011 to 6.5% in 2026. BCG’s Director for Growth, Raoul Ruparel, said while Britain’s financial firms look strong on the surface, it wasn’t allocating capital effectively anymore.

He said the banking sector is acting as a drag on growth in productivity rather than supporting it, adding that was a problem for the UK, not sector-wide.

Real estate SMEs now make up 51% of all loans to small businesses compared with 39% a decade ago, in what Mr Ruparel said was potentially harmful to growth.

The Financial Times reports him as saying: “It doesn’t feel like the most productive use of lending . . . often this is not financing the building but refinancing agreements on existing buildings.”

SMEs are the most common type of business in Britain and major employers, according to the House of Lords Library.

It reports that of the 5.5million private sector businesses in 2024 in the UK, 99.8% were SMEs and 60% of employees in the same sector worked for them.

In the same year, SMEs accounted for 52% of private sector turnover, at £2.8trillion.

Concerns about SMEs access to finance and banking have been raised previously.

The Federation of Small Businesses said in 2022 that one concern centred around the success rate of applications for finance.

Its report, Credit where Credit’s Due, showed this fell to an all time low of two fifths of all applications, with difficulties including a lengthy application process and getting advice.

A Commons Treasury Committee report in 2024 highlighted an increase in SMEs being de-banked, where banks close customer accounts.

The Government, in response to the report, said it recognised SMEs’ “crucial role” in driving economic growth and it was committed to making sure businesses can access finance.

The Express has approached Boston Consulting Group for comment.