The EY ITEM Club Outlook for financial services suggests a subdued growth for the UK economy in the coming years.
The latest Outlook was based on the scenario that an agreement over the UK’s withdrawal from the EU would be reached by the proposed deadline of 31 October 2019.
The forecast shows a familiar, subdued outlook for the UK economy where GDP growth is predicted at only 1.3% for this year, with a marginal increase at 1.5% in 2020.
The continued political uncertainty surrounding Brexit and increasing international trade protectionism have impacted both consumer and business appetite to borrow and spend. Business investment fell 0.4% in 2018 – only the second annual decline since 2009 - and was forecasted to see another decline in 2019. Even if the investment projects that are currently on hold are implemented once a deal on the withdrawal agreement is reached, we’re unlikely to see the results of these investments until 2020. As a result, business lending is forecast to rise only 1.3% this year, and 2.2% in 2020.
Despite improvement in real incomes, the growth in demand for consumer credit is set to slow from 4% in 2018 to 1.6% this year, and to 2% in 2020 – the lowest rate since 2013. With the household saving ratio sitting well below the long-run average and continued Brexit-related uncertainty, consumers are likely to want to bolster their finances rather than increase their spending. Mortgage lending is predicted to grow just under 1% this year – the lowest since 2011 - followed by 1.3% in 2020, as house prices remain high and unaffordable to many potential buyers.