Business lending to fall in light of Brexit

Business lending is expected to fall as customer credit and mortgage demand weakens due to people being put off making big purchases in light of Brexit.

According to the Ernst & Young Item Club, business lending is anticipated to fall by about 1% this year, 1.8% in 2017 and 1% in 2018.

Lending has been steadily declining since the 2008 financial crisis anyway, but was predicted to recover to pre-crisis levels. However, Brexit uncertainty has put a spanner in the works.

Financial services managing partner at Ernst & Young, Omar Ali 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.”

Business and consumers are delaying investments and big purchases as they await on the economic implications and uncertainty arisen from Brexit. However, mortgage lending and consumer credit are expected to increase but at a slower pace. Mortgage lending growth is set to fall to below an annualised 1% on average for the next three years from 3% in 2015.

On 18 July the Ernst & Young Item Club cut its forecast for 2016 UK economic growth to 1.9% from 2.6% after the EU referendum. For 2017 it cut growth to 0.4% from 2.3%.

On Friday UK banks passed stress tests conducted on EU banks by the pan-European banking regulator. The Bank of England said this was due to the resilience of the UK’s financial sector in being able to cope with downturns. The reserve bank said British banks were in a much better shape to deal with economic shocks than they were before the 2008 financial crisis.

At a monetary policy committee on Thursday, the BoE is expected to slash interest rates to 0.25% from 0.5% to encourage economic growth, or add to its quantitative easing programme in response to Brexit.