UK Asset Finance Market Declines by 4% in November 2024: Navigating Market Fluctuations

The UK asset finance market experienced a 4% decline in November 2024, marking a significant shift in the financing landscape. This downturn, driven by economic uncertainties, Brexit-related challenges, and a slowdown in SME investment, has left investors grappling with market fluctuations and seeking strategies to mitigate risks. In this article, we will delve into the factors contributing to this decline and explore potential strategies for investors to navigate the volatile asset finance sector.



Factors Contributing to the Decline

Economic uncertainties, such as the ongoing Brexit negotiations and the global economic slowdown, have led businesses to adopt a more cautious approach to investment. This has resulted in a decrease in demand for asset finance, as companies are hesitant to commit to long-term investments in equipment and vehicles (FLA, 2024).

Brexit-related challenges have also contributed to the decline in the asset finance market. The uncertainty surrounding the UK's future relationship with the EU has led to a decrease in investment from both UK-based and European companies. This has resulted in a slowdown in demand for asset finance, as businesses are waiting for more clarity on the Brexit situation before making significant investments (Walker Morris, 2021).

The slowdown in investment from SMEs has also contributed to the decline in the asset finance market. According to the FLA, SMEs accounted for a significant portion of the decline in new business volumes in November 2024. This can be attributed to a combination of factors, including the economic uncertainties, Brexit-related challenges, and a decrease in consumer confidence, which has led to a decrease in demand for SME products and services (FLA, 2024).



Impact on the Broader UK Economy

The decline in the asset finance market has had a significant impact on the broader UK economy, particularly for SMEs, which rely heavily on these financing options for growth and investment. According to a report by the Finance & Leasing Association (FLA), the asset finance market in the UK experienced a decline of 27% in new business volumes in 2020 compared to the previous year, due to the COVID-19 pandemic and Brexit uncertainty (FLA, 2021).

This decline has affected various sectors, with the food and drink industry being one of the most impacted. A study by Walker Morris revealed that almost half (40%) of UK SMEs, including many within the food and drink sector, sought finance for growth over the next 12 months. However, more than three-quarters of these businesses were unable to secure traditional bank financing, making the need for alternative lenders, such as asset finance providers, greater than ever (Walker Morris, 2021).

The decline in asset finance has also led to a reduction in investment in equipment and machinery, which is crucial for SMEs to expand their operations and increase productivity. A survey by the British Chambers of Commerce (BCC) found that 44% of businesses planned to invest in new equipment or machinery in the next 12 months, but this was significantly lower than the 55% recorded in the same period in 2019 (BCC, 2020).



Strategies to Mitigate Risks

To mitigate risks associated with market fluctuations in the asset finance sector, investors can employ several strategies. Here are some key approaches, supported by specific examples and data from the provided materials:

1. Diversification: Diversifying investments across various asset classes, sectors, and geographies can help reduce the impact of market fluctuations on the overall portfolio. For instance, the Ambition A.M. Accelerator event highlighted the importance of supporting SMEs in different sectors, as they contribute significantly to job creation and innovation (Kirtland, 2021).
2. Risk assessment and management: Thoroughly evaluating the risk profile of potential investments is crucial. This includes assessing the creditworthiness of borrowers, understanding the underlying assets, and considering market trends. For example, alternative lenders should have an overarching assurance and oversight framework to support turnaround opportunities for struggling SMEs (Walker Morris, 2021).
3. Flexible financing structures: Offering flexible financing solutions tailored to the specific needs of borrowers can help mitigate risks. For instance, embedded finance allows firms to offer customers a one-stop-shop suite of financial products and services, enabling them to adapt to changing market dynamics (Walker Morris, 2021).
4. Monitoring and reviewing customer journeys: Tracking the entire customer journey helps identify areas where policy, process, design, or delivery may not be adequate, allowing firms to mitigate risks and ensure good outcomes (Walker Morris, 2021).
5. Regulatory compliance and best practices: Adhering to regulatory guidelines and implementing best practice standards can help mitigate risks. For example, in the absence of regulation in the Buy Now Pay Later (BNPL) space, firms should consider working towards best practice standards to help identify red flags in customer data and appropriate customer communication (Walker Morris, 2021).
6. Collaboration and knowledge sharing: Engaging with mentorship programs, networking events, and other initiatives that facilitate connections within the industry can lead to stronger business outcomes and a more robust economy (Kirtland, 2021).
7. Investing in stable financial partners: Investors should look for banks and financial institutions that prioritize SME lending and demonstrate a commitment to fostering long-term relationships with their clients. Companies like Allica Bank, which cater specifically to the needs of SMEs, are likely to see increased demand for their services (Kirtland, 2021).

By implementing these strategies, investors can better navigate market fluctuations and mitigate risks in the asset finance sector.

In conclusion, the 4% decline in the UK asset finance market in November 2024 has had a significant impact on the broader UK economy, particularly for SMEs. To mitigate risks associated with market fluctuations, investors should consider diversifying their portfolios, assessing risks thoroughly, offering flexible financing structures, monitoring customer journeys, adhering to regulatory guidelines, collaborating with industry peers, and investing in stable financial partners. By doing so, investors can better navigate the volatile asset finance sector and contribute to the UK's economic recovery.