Business lending £417b below 2008 peak

The UK’s consumer credit and residential mortgage lending markets are showing real signs of recovery, according to Ernst & Young’s (E&Y) ITEM Club, with both expected to grow at a healthy rate of over 3% in 2014.

But business lending remains 27.5% (£417 billion) below its 2008 peak and in the last quarter of 2013 hit a five-year low!

However, the respected economic forecaster expects lending to firms to rise significantly over the next three years, with year-on-year rises of 2.5% in 2014; 4.5% in 2015; 5.5% in 2016; finally hitting 6.8% in 2017.

E&Y’s UK head of banking and capital markets, Omar Ali, comments: “Despite growing economic momentum and forecast increases in lending, the environment for UK banks remains challenging.

“Persistently low interest rates are not only bad news for savers, but also for net interest margins.

“To deliver the returns that investors demand, banks will need to offset this pressure by growing their balance sheets or generating stronger fee income, with neither of these options without their difficulties.”