U.K. Business Lending Forecast to Shrink Until 2019, EY Saysby
Financial services outlook hurt by post-Brexit vote economy
Stock of company loans seen falling to lowest since 2005
Business loans in the U.K. will shrink to the lowest in more than a decade in the next couple of years as weaker economic prospects in the aftermath of the vote to leave the European Union damp demand, according to the EY ITEM Club.
Total lending to companies will contract 1.8 percent next year and another 1 percent in 2018 before finally recovering the following year, the organization said in a report released on Monday. By then, the total stock of business loans will have dropped to 376 billion pounds ($497 billion), the lowest since 2005, EY said.
The outlook adds to a picture of gloom that may prompt Bank of England policy makers to add stimulus this week, possibly including the revival of a program to spur lending to companies. Almost all economists surveyed by Bloomberg predict an interest-rate cut on Thursday, when officials will present new forecasts.
“Whilst banks are still willing to lend, there is a strong sense of ‘wait and see’ from business and consumers as they await details of what Brexit will look like in reality,” said Omar Ali, U.K. financial services managing partner at EY. “Mortgages and consumer credit are still forecast to grow, albeit slower than before, and business lending is going to shrink slightly.”
Mortgage lending will expand by an annual average of less than 1 percent over the next three years, a third of the pace in 2015, EY said. Car registrations will fall in 2017 for the first time in six years, it said.
Assets at fund managers will increase by only 1.5 percent a year through 2019, down from 7.7 percent in 2015, and general insurance premium income will rise by 0.8 percent next year, down from 2.8 percent last year, EY predicted.
“Consumers and businesses are going to think twice before they borrow, and be careful about what they invest in,” Ali said. “But this economic environment isn’t that different from what the industry has been contending with over the past eight years of change and challenge.”