British financial services to accelerate post-Brexit after negotiating a tricky two years

 
Jasper Jolly
The Square Mile - London's Financial District
The City will bounce back from a slow two years, the EY Item Club says (Source: Getty)

Britain’s financial services sector will continue to grow over the next two years with an acceleration after Brexit, new forecasts show.

Net business lending will grow £8bn in 2017 to reach £414bn, according to EY’s Item Club forecasters.

The UK financial services industry, one of the few sectors to have a large trade surplus with the EU, will see a “pronounced pick-up” in 2019, the forecasts said. The UK will leave the EU in the spring of 2019, after two years of negotiations.

Read more: Bank of England adds new stress test to assess banks' Brexit preparation

That acceleration after Brexit will see lending to industry top £430bn by 2020, Item Club economists predicted, despite its forecast that overall business investment will decline this year.

While the banking sector could actually shrink slightly in 2018, total assets are set to rise by more than £300bn to reach more than £7.3 trillion in 2020, the forecasts show.

Banks saw total stock rise by 11 per cent in 2016, the fastest growth since the financial crisis.

The sharp rise in inflation is expected to make British consumers tighten their belts as real wages are squeezed, but the outlook for mortgage lending remains positive.

Read more: How the City can remain the jewel in London’s crown post-Brexit

Growth in mortgage lending could slow to 0.1 per cent in 2018, the forecasts show, but will bounce back. The total stock of mortgage lending will rise above £1.2 trillion by 2020, the forecasts show.

Meanwhile, consumers are also expected to borrow more apart from their mortgages, with EY economists expecting an extra £23bn to be lent by 2020.

That would mean the total amount lent to consumers would stand at £216bn, up from the £194bn of loans outstanding in January, reported by the Bank of England.

Omar Ali, EY’s UK financial services managing partner, said: “Brexit and wider geopolitics have injected a level of uncertainty and volatility we have not seen for some years, but the fundamentals of the UK financial services industry remain strong.

“Lending is predicted to increase, perhaps not as much as we had hoped, but it is still growing. This is good news for the UK as a whole as it means financial services can continue to play an important role in supporting the growth of the wider economy.”

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