UK bank lending growth to fall to three-year low
Growth in UK bank lending is forecast to stall in the coming years as borrowers feel the pinch of uncertain economic conditions.
Lending growth is expected to slow this year to 2.9 per cent before dropping to a three-year low of 2.2 per cent in 2027, according to figures from EY.
The figures mark a significant drop from 3.6 per cent just last year and come as broader unpredictability clouds global economies.
“The moderation in lending activity is broad-based, as households and businesses become more cautious in response to economic uncertainty and higher costs,” Dan Cooper, head of banking at EY UK & Ireland, said.
The report pointed to ongoing geopolitical tensions as driving the shift in the economy. Businesses and households have felt pressures from the conflict in the Middle East after energy prices soared following disruption to supply chains.
The price of oil has remained volatile following disruption to the Strait of Hormuz, a key shipping lane. Brent crude – the international benchmark for oil prices – reached highs of $114 this year and has traded around the three-digit mark over the last month.
Cooper said business investment, housing activity and consumer borrowing were all anticipated to “remain subdued in the near term”.
Business borrowing to take biggest hit this year
Corporate borrowing is tipped to be the most hit, according to the EY data, as firms become more cautious around investment. Growth is tipped to more than half to 2.1 per cent this year, from 5.3 per cent last year.
But renewed business spending on strategic areas such as artificial intelligence is expected to deliver a bump in the years ahead. EY forecasts 2.8 per cent growth in 2027 and 3.9 per cent in 2028.
Mortgage lending growth is projected to rise modestly this year to 3.3 per cent, from the three per cent. But rising unemployment, slower wage growth and potential higher interests are expected to reduce growth next year to 2.2 per cent.
Fresh data from the Bank of England this week revealed net mortgage approvals for UK house purchases, a key indicator of future borrowing, fell to 54,900 in August 2026. This was below market expectations of 56,100.
It also marked the lowest level since December 2023 and remained well below the previous six-month average of around 60,100 as the pressure of elevated borrowing costs continued to weigh.