Further pick up in lending will spur growth for financial services in 2016
The financial services industry is set for a stronger year, as the appetite for business and household borrowing increases, according to the latest EY ITEM Club forecast for financial services. However, the industry will be looking for reassurance that there’s still an intention to put interest rates up before this time next year, and will be watching the US and the consequences of the FED’s rate rise last December with interest, especially given the deteriorating macro-economic environment.
Following an uptick in business lending towards the end of 2015, robust business investment growth and low borrowing costs will lead to a further pick up in businesses’ demand for loans this year and beyond. Net business lending is expected to increase by £15b this year and to grow by an average of 5% per annum between 2016 and 2019, compared to an average fall of 6% from 2009 to 2014. 2016 is also forecast to see write-off rates for business lending drop below 1% for the first time since 2008.
In addition, with consumer spending forecast to increase by 2.8% in 2016, growth in consumer credit is set to run at a robust 5.7% in 2016 and average around 4% growth in the three years to 2019.
Finally, steady growth in house prices alongside rising household incomes should contribute to 2016 seeing net mortgage lending increase by 3.4%, the fastest since 2007, but still below pre-crises levels, according to the EY ITEM Club.
Omar Ali, UK Financial Services Managing Partner at EY, says: “2015 was the first year for some time that the underlying economic fundamentals were good enough to support an across-the-board return to growth in borrowing by consumers, home buyers and firms. Despite concerns about the oil price and the impact of a slowdown in China, the outlook for financial services in 2016 is looking positive. If we can plot a course through the policy and politics, 2016 looks set to be a better good year.
“However, the delay in any UK interest rate rise is causing some concern. Until rates rise, banks are going to struggle to increase the gap between lending and savings rates, and the prospect of higher returns for asset managers and insurers is pushed even further out.