Better outlook

Bank lending to rise as UK avoids recession


Housing may underperform the market, but mortgage lending will rise (pic: Terry Murden)

Banks are expected to increase their lending this year as more evidence emerges that the UK economy will avoid a recession.

Economists are forecasting a 1.2% rise in total UK bank loans, a net increase of £29bn, upgraded from a 0.1% per cent fall in February.

Net mortgage lending is expected to rise by the same proportion, up from 0.4% expected in the February Forecast, although the housing market is likely to underperform the wider economy.

The revised outlook from the EY ITEM Club UK Bank Lending Forecast is based on expectations of falling inflation, lower-than-expected energy bills and a resilient jobs market.

This is likely to see UK GDP rise by 0.2% in 2023 rather than contracting as widely predicted last year by a number of organisation including the Bank of England.

Anna Anthony, UK financial services managing partner at EY, said: “We’re still on the path to economic recovery and many businesses and consumers – particularly the most vulnerable in society – continue to face significant cost-of-living pressures.

“This cannot be underestimated, and appropriate support must still be provided, but we are in a more optimistic place than we were a few months ago. 

“The recession that many thought was inevitable is now likely to be avoided and energy prices have fallen, boosting consumer and business sentiment,” she said.

“Despite recent volatility in the global banking sector, the EY ITEM Club has been able to upgrade its growth forecasts for UK bank lending this year, which is positive news.”

She added: “While encouraging, enthusiasm should be measured, in the short-term at least. UK banks continue to face a tough environment with historically low lending growth rates.

“However, the sector is in a strong capital position and continues to provide ongoing support to customers, businesses and the wider economy.

“With economic conditions expected to improve over the course of 2023 and into 2024, banks will be able to devote more of their time to other critical areas such as digital innovation, sustainability and governance.”

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