The EY ITEM Club’s UK Bank Lending Forecast reveals an expected growth in mortgage lending of 2.2% net in 2024 and 3.4% net in 2025, attributed to decreasing interest rates and an enhancing economic outlook.
This optimistic forecast contrasts with the stagnation in bank-to-business lending, which is projected to see a mere 0.8% net growth in 2024, reflecting businesses’ hesitation to incur debt amidst ongoing economic uncertainties, both domestically and globally.
The overall bank lending to households and businesses, encompassing mortgages and consumer credit, is anticipated to experience a 2.2% net growth this year, an improvement from 0.6% net in 2023, with projections of further increases in the following years.
These predictions come despite the UK entering a technical recession in 2023, with expectations of GDP growth based on falling inflation and energy costs, alongside anticipated cuts in interest rates.
Anna Anthony, UK Financial Services Managing Partner at EY, commented on the challenging yet hopeful situation, stating: “This will be another tough year for UK businesses and households, however, there are signs to suggest that momentum in the economy will build following a weak 2023. If borrowing costs and interest rates fall as expected, by next year we expect market confidence to have lifted markedly.”
Despite a sharp -2.1% net decline in business lending in 2023, a rebound is expected in the coming years, with a significant 3.5% net growth forecasted for 2025, the highest since the government’s COVID-19 loan support in 2020.
This growth is anticipated as businesses adapt to digitalisation, AI technologies, and green energy initiatives, coupled with an improving economic climate.
The demand for mortgage lending is poised for recovery in 2024 and 2025, buoyed by the Bank of England’s projected policy rate cuts and a decrease in inflation, leading to more affordable home loans.
Conversely, consumer credit demand is expected to decelerate as inflation continues to drop, with a gradual decline in growth rates predicted for the coming years.
Dan Cooper, UK Head of Banking and Capital Markets at EY, highlighted the banking sector’s challenges and the importance of strategic investment, stating: “The banking sector continues to balance low levels of lending growth with the need to invest in strategic priorities and transformation objectives…banks must ensure that time, money and resource continue to flow into keys areas to remain competitive, such as AI innovation and sustainability.”