With the UK’s sluggish economic growth not looking likely to improve any time soon, all three major lending classes are set to grow less than two per cent this year, according to data published by the EY Item Club.
Despite a slight increase in real incomes, demand for consumer credit is predicted to grow just 1.6 per cent this year and only two per cent in 2020, slowing from 4 per cent in 2018, marking the lowest rate of growth since 2013.
The number of mortgage approvals has remained flat in recent months and the EY Item Club has forecast continued stagnation in the market, with growth of less than one per cent – the lowest growth since 2011 – followed by 1.3 per cent in 2020, while consumer confidence and a lack of supply relentlessly pummels the property market. This is coupled with high property prices which is a significant hurdle for many potential buyers.
Furthermore, continued uncertainty surrounding Brexit means business lending is expected to grow just 1.3 per cent this year, as businesses postpone major investment plans.
However, the sluggish forecast across lending classes is a best-case scenario and has been calculated with the provision that a Brexit deal will be reached by 31 October. However, this predicted growth would take a significant hit if the UK were to crash out of the EU without an agreed deal, the firm said.
Commenting on the data, EY UK Financial Services managing partner Omar Ali said: “The weak economic outlook continues to hold back demand for lending. It’s been a similar story for over a decade now and there’s little improvement in sight.
“Since the financial crisis, the expectation was that the economy would return to higher growth after a short period of sluggishness – this has never materialised and is not forecast to happen any time soon.”
The UK has experienced a slowdown in growth across its wider economy, which grew just 1.4 per cent last year – the slowest rate since 2009. Further to this, GDP growth is forecast to be just 1.3 per cent this year, rising marginally to 1.5 per cent in 2020. However, economists have warned that a no-deal Brexit could send the UK into recession.
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