Bank lending to business recovering

In its latest forecast, EY’s ITEM Club sees the UK recovery looking encouraging, with GDP expected to grow by 2.7% in 2015. Consumer spending is on the rise and growth in business lending is predicted to move back into positive territory for the first time since 2008. However, banks are having to factor in the possibility of further fines for regulatory breaches, and the tax announcement in the Summer Budget, which will squeeze them further.

Other key predictions from ITEM Club include:

• Bank lending to companies is likely to move into positive territory for the first time since 2008. Gross lending to firms increased by 19% in the first half of 2015 compared to a year earlier.
• We expect mortgage lending to grow at an annual rate of 3.8% from 2015-2019 as house prices continue to rise. Growth will be limited by tighter regulatory constraints and continued high levels of cash transactions.
• UK banks incurred fines and redress of £7.7b in 2014, up from only £0.5b in 2010.  Despite constant hopes from banks that fines are tapering off, provisions suggest there are almost certainly more to come.
• Growth in consumer credit has returned to pre-financial crisis rates. A strong rise in real incomes will help consumer credit grow by almost 5% per year from 2015-2019
• The timing overlap between the introduction of the 8% tax surcharge and reduction of the bank levy is significant, increasing the tax take from the UK banking sector between now and 2021.