New data released by the Finance & Leasing Association (FLA) reveals that total asset finance new business, primarily comprising leasing and hire purchase, experienced a 1% decline in December 2023 compared to the same month in 2022.
However, the sector achieved a noteworthy 12% increase in new business for the entire year of 2023 compared to the previous year.
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Breaking down the sectoral performance, the business new car finance and commercial vehicle finance sectors reported a robust 8% and 1% increase in new business in December, respectively, compared to the same period in 2022. In contrast, the plant and machinery finance sector witnessed a 22% decrease in new business over the same period.
Geraldine Kilkelly, Director of Research and Chief Economist at the FLA, highlighted that despite experiencing its first monthly contraction in new business year-on-year since April 2022, the annual asset finance new business reached a record level of £38.3 billion in 2023.
Kilkelly underscored that the growth in 2023 was primarily driven by the vehicle finance sectors, while the machinery and equipment finance sectors reported lower new business levels compared to 2022.
She emphasized the industry's role in supporting investment across businesses of all sizes. New lending to SMEs saw a notable 7% increase, reaching a record high of £23.5 billion. Larger businesses also benefited, with new lending witnessing a robust 19% surge, reaching £13.3 billion – the highest level since 2019.
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By GlobalData“The asset finance industry has a proven track record in supporting the real economy by financing as much as 40% of UK investment in vehicles, machinery, and equipment. It is playing a key role in supporting businesses to make the transition to net zero," Kilkelly stated.
She continued to urge the Government to extend the full-expensing regime to include leasing in the upcoming Spring Budget.
James Rudolf, Chief Commercial Officer at Acquis, said: "The FLA's December 2023 figures mark the first decline in asset finance new business since April 2022. Notably, the machinery and equipment sector witnessed a reduction in overall new business levels compared to the preceding year.
"The impact of inflation and rising borrowing costs throughout 2023 is evident in these numbers. Although there are positive signs, such as a decrease in inflation to 4% in December 2023 from 10.5% the previous year and a strengthened labour market, several significant macroeconomic factors will persist. This ongoing economic uncertainty is likely to be a concern for businesses throughout 2024, leading to a degree of fluctuation.
"Our proprietary Acquis Index, which assesses new business asset finance throughout 2023, reveals a relatively stable performance in the industry, despite initial concerns at the beginning of the year. A closer examination of the Index indicates that only a few asset classes outperformed their 2022 counterparts. Notably, building and construction demonstrated a noteworthy 5% growth in the annual value of lease inceptions.
"Conversely, the restaurant and retail equipment sector experienced a 7% decline in the annual values of new leases compared to 2022. However, it's essential to interpret these numbers cautiously, as they may reflect the industry normalizing post-pandemic, following an exceptional surge in 2022."
“To improve the outlook for 2024, we need Government strategies to promote business investment and restore investor confidence, but with a General Election on the cards, this may not come to fruition in the short term, but the continued resilience and ingenuity demonstrated by our client partners in the asset finance sector will mean that once again the performance of the industry will defy predictions.”
