U.K. lending to households and companies will begin growing again this year and keep increasing through 2015, the Ernst & Young Item Club outlook showed.
Lending may rise 1.8 percent this year, 3.8 percent in 2014 and 5 percent in 2015 after shrinking an estimated 7 percent in 2012, according to the outlook compiled by the London-based group published today. Corporate and mortgage lending will drive the “modest” growth this year, while consumer lending will be little changed and begin growing again in 2014, it said.
“Although 1.8 percent growth in lending may seem modest, it will be the fastest growth in bank lending since 2010 and marks the beginning of the end of the painful period of deleveraging,” Carl Astorri, senior economic adviser to the Ernst & Young Item Club outlook on financial services, said in the statement. “As lending continues to pick up in 2014 and 2015, the money should start to trickle through to cash-starved small and medium-sized enterprises.”
Lending to the non-bank private sector will expand 3.8 percent next year, reaching its 2010 peak of 1.65 trillion pounds ($2.6 trillion) and increase close to 5 percent in 2015, according to the statement. Deposits at U.K. lenders fell an estimated 7.2 percent in 2012, which was driven by “non-resident foreign currency linked to the repatriation of capital by banks” in the euro region, it said.
“But this negative influence should be more moderate in 2013 as the situation in the euro zone stabilizes, allowing total deposits for U.K. banks to start rising again,” the Ernst & Young Item Club said.
Corporate loan write-offs will drop to 1.2 percent of total loans this year after peaking at an estimated 10.9 billion pounds last year, helped by a economic recovery in the U.K. Still, “bank profitability will remain under pressure because of the impact of low real interest rates on margins, as well as higher regulatory and compliance costs and generally subdued capital market activity throughout the euro zone,” it said.