EY ITEM Club Forecast: Outlook for Financial Services Autumn 2013
Forecast in summary
EY ITEM Club's Outlook for Financial Services Autumn 2013 Forecast sees a more firmly entrenched recovery for the UK economy driven by growing GDP, and a revival in the housing market. However, confidence in financial services remains fragile and the industry cannot afford to be complacent.
- Consumer lending growth is expected to pick up from 1% in 2013 to 3% in 2015, and mortgage lending is forecast to increase by over 6% between 2013-2015. However, net lending to businesses is expected to decline by more than 4% in 2013.
- Life-premiums are forecast to reach £176b by 2017. Despite average growth of 3.8% 2013-17, by 2017 they will still be 17% lower than in 2007. Insurance profits however are expected to reach £7.5b by 2015, exceeding their pre-crisis peak of £7.3b.
- Bond AUMs are forecast to expand just 1.2% a year on average during 2014-17, compared with almost 18% a year over 2009-12. Equities are expected to grow 17% this year, with continued growth through 2017.
The revival of the UK housing market is contributing to increased consumer confidence. Consumer lending is expected to grow by 3% in 2015 reaching £169b and net mortgage lending will reach £1,155b by 2015, a 6% increase from 2013. But the outlook for business lending is less positive with a 4% fall expected in 2013.
There are positive signs of a return to profitability for insurers as profits are expected to reach £7.5b by 2015, exceeding their pre-crisis peak of £7.3b. But despite average growth of 3.8% over 2014-17 reaching £176b by 2017, life premium income will remain 17% below 2007 figures. Higher housing market turnover and an aging population present potential opportunities for insurers.
As investors are increasingly willing to hold risk assets again, total UK-focused AUMs are expected to rise 12% this year to £780b. Conversely, AUMs in bond funds are forecast to expand just 1.2% a year on average during 2014-2017 compared with AUM growth averaging almost 18% a year over 2009-2012. If AUMs continue to grow in line with the forecast, the Asset Management industry is anticipated to make an annual contribution to UK GDP of £20b by 2017.