Bank lending to businesses is set to fall in the aftermath of the Brexit vote, while demand for consumer credit and mortgages will also weaken as people spend less on big-ticket items, a report predicts.
Business lending is predicted to shrink by around 1% this year, 1.8% next year and a further 1% in 2018, according to the EY Item Club’s latest report on financial services. Lending had been expected to rise this year and beyond, after a steady decline since the financial crisis.
Item warned that lending would slow as businesses delayed investments and consumers postponed the purchase of big-ticket items, including property, as they waited for details on both the timetable for the UK to leave the EU and the results of negotiations.
Item has already slashed its predictions for UK economic growth following the referendum from 2.6% to 1.9% this year and from 2.3% to 0.4% in 2017.
Mortgage lending and consumer credit are still expected to grow, but at a slower pace than previously thought. Annual growth in mortgage lending is set to fall to less than 1% a year on average over the next three years, from 3% in 2014 and 2015.
Omar Ali, UK financial services managing partner at EY, said: “We had hoped 2016 would be the year that total lending recovered to pre-crisis levels, but with the revised economic outlook this looks increasingly unlikely. 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.”
The UK banking sector passed the latest EU-wide health checks on Friday. The Bank of England said the stress tests, which were overseen by the pan-European banking regulator, showed that the British financial industry was resilient enough to cope with downturns in the economy and the markets.
RBS and HSBC will report interim results this week. RBS is expected to post a £1.2bn loss for the second quarter on Friday. Analysts are hoping for an update on the spinoff of Williams & Glyn. The European commission has demanded that 300 Williams & Glyn branches be sold in return for RBS’s £45bn taxpayer bailout, but RBS has already said it could miss the deadline, which has already been extended to December 2017.
HSBC, Britain’s biggest bank, is likely to unveil a big drop in first-half profits on Wednesday, and some analysts have flagged concerns about the dividend. Pre-tax profits are expected to fall by around 20%. The bank has been cutting back its operations, with the £3.9bn sale of its Brazilian division completed in July.
