Our State of the Market report for 2023 so far

How has the macroeconomic situation changed since our last update? 

In our previous update we talked about rising inflation, interest rates and the impact these pressures were having on some businesses. In many ways the picture is similar, inflation remains high, and the Bank of England (BoE) has raised the base rate for the tenth consecutive time. Nevertheless, globally, many economists are more optimistic than a few months ago – with the International Monetary Fund (IMF) upgrading their forecast for global GDP growth by 0.5ppts, on the back of the Chinese economy opening up and falling energy prices for Europe.

European Wholesale Gas Prices¹

Looking closer to home however, the IMF expects the UK to be the only leading economy to shrink in 2023. GDP is forecast to be 0.5 per cent smaller in the fourth quarter of the year than in the same period of 2022, and Bank of England Surveys suggest that business investment is likely to fall in 2023. 

One notable bright note is that while the BoE raised the base rate by 50bps in the most recent Monetary Policy Committee (MPC), they softened the language in their accompanying Statement on the likelihood of future interest rate rises. Therefore, longer term interest rates such as government bond yields and interest rate swaps (a key determinant of FC pricing as outlined in the November newsletter) have fallen – as financial investors bet that the BoE will not raise interest rates as much as previously thought.

How is Funding Circle reacting to all this?

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

Since the start of 2023, we have made a number of changes with this goal in mind:

1. We’ve tailored our approach to larger businesses to gain a more detailed picture of their situation, which will allow us to say yes more often.
2. We’ve reintroduced D Risk Bands in certain segments as we continue to monitor in detail the credit performance of our portfolio.
3. We’ve reduced our prices by an average of 100bps for the best quality borrowers, as we pass on the benefit of reduced swap rates to your clients.

Given the current uncertainty, we continue to watch developments closely and will keep you updated as we look to improve our proposition for you and your clients.