With a cost-of-living crisis showing no signs of abating and ongoing turmoil in global politics causing continued pressures, the economic outlook for the UK at the start of 2023 was gloomy at best.
Yet, despite the unfavourable predictions of economic commentators in the press, asset finance volumes in 2023 got off to a solid start and, according to figures from the Acquis Index, the value of new lease originations in the first quarter of the year was ahead of the same period in both 2021 and 2022; with a 45% increase on 2021 and a 4.4% increase on 2022.
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However, this strong start to the year was followed by a tricky second quarter, with April and May experiencing an unseasonable dip in total lease values. May in particular saw a 13% decrease in the total value of new leases against the same period the previous year. During this time, the UK saw three bank holidays held within one month in May 2023, compared to just one in 2022, due to the jubilee holiday weekend in June 2022, which likely contributed to lower volumes of business.
During June, the Index reported a strong bounce back with the value of new lease originations recovering to 17% above the same period in 2022. Indeed, June ended as the strongest-performing month of the year.
The second half of the year saw fewer fluctuations in performance of new originations; however, this did mean that for the last six months of 2023 growth for the asset finance industry was essentially on hold and we did not witness any consistently upward trends.
The value of new lease originations from August until the end of the year tracked beneath 2022 performance, before finishing the year with a pronounced downturn in December when values dropped by a third on the previous year.
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By GlobalDataLooking at the full year, the performance of asset finance new originations during 2023 was similar to 2022 with just a 4% variance, 2023 being the lower performer. However, this was still an 18% improvement on the 2021 total value of originations, demonstrating that very little ground was lost on the recovery the industry has seen since the pandemic.
A closer look at specific market sectors reveals that only a handful of asset classes performed better in 2023 than in 2022, one example being building & construction which demonstrated a 5% growth in annual value of lease inceptions. Sectors which held firm with 2022 performance included industrial equipment, as well as office equipment, a sector that continues to defy the more pessimistic predictions of post-pandemic demise. Restaurant and retail equipment experienced a drop in annual values of new leases of 7% on 2022, however 2022 had been an exceptional ‘bounce back’ year for this equipment class having grown 51% on 2021. One of the most dramatic drops in growth was witnessed in the agricultural sector with new lease values declining 40% on 2022.
James Rudolf, Chief Commercial Officer at Acquis, said: “Against a challenging backdrop of global political instability, high inflation and a looming threat of recession, 2023 was predicted to be a poor performing year. Yet we have seen some positives, with supply chain delays having improved and our Index demonstrating that demand for asset finance has managed to hold steady despite the odds.”
With regards to predictions for the coming year, James Rudolf added: “While some challenges are easing with inflation in December 2023 dropping to 4%, compared to 10.5% the year before and a strengthened labour market and growing wages, several major macroeconomic factors will persist. This will cause worry for many businesses throughout the year so an element of caution certainly remains.”
“Continued support for long-term government strategies that promote business investment and restore investor confidence will be required. In addition, speculation over the timing of a general election in the UK, with party policy and promises designed to win over the electorate from all sides, will contribute to a continued choppy financial outlook throughout 2024.”
“I am confident that 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.”
