UK bank-to-business lending growth to halve this year

• Growth in UK bank lending to businesses forecast to slow to 3.5% this year, from 6.9% in 2025, but rise to 4.5% in 2027, and 4.9% in 2028.
• UK mortgage lending expected to grow 2.5% this year, a dip from 3% in 2025, but rebound to 3.3% in 2027, and 3.5% in 2028.
• UK consumer credit lending growth forecast to remain largely flat at 5.8% in 2026 (from 6.1% in 2025), 5.7% in 2027, and 5.3% in 2028.

Following growth of 6.9% (net) in 2025, bank to business lending is forecast to slow to 3.5% (net growth) this year, as global and economic headwinds impact business confidence and reduce investment demand, according to the latest EY ITEM Club Bank Lending Forecast.

While falling interest rates helped boost business lending last year to the highest level since the pandemic, the current unpredictable trading environment is expected to weigh on investment appetite in 2026, leading to more modest growth. However, should the UK’s economic outlook improve as expected from 2027, business lending growth is also expected to regain momentum, rising to 4.5% (net) in 2027, and 4.9% (net) in 2028. 

This one-year dip in business borrowing is reflected across wider bank lending and is in line with a forecasted deceleration in economic growth more generally. The UK economy is expected to grow only marginally this year, as geopolitical uncertainty, tariff disruption, and tightening fiscal policy impact growth levels. GDP is predicted to fall from 1.3% in 2025 to 0.9% this year, before returning to 1.3% in 2027.  

As a result, total bank lending (across mortgages, consumer credit and business borrowing) is forecast to slow from 4.1% (net growth) in 2025 to 3.1% (net) in 2026. In line with GDP, bank lending is then expected to pick back up in 2027 and 2028, recovering from the 2026 dip, and growing steadily to 3.8% (net) and 4% (net) respectively, as the economy improves, confidence builds and businesses look to take advantage of continued healthy balance sheets.  

Martina Keane, EY UK & Ireland Financial Services Leader, comments: “While geopolitical and macroeconomic challenges are dampening the outlook for corporate and consumer borrowing, slower growth is expected to be temporary, and an uptick is expected from 2027. 

“In today’s inherently unpredictable trading environment, waiting for stability is not an option, and given the brighter horizon ahead, a one-year dip in lending growth shouldn’t deter banks from progressing longer-term strategies. Continuing to focus on AI scaling and governance, digital transformation, cyber-resilience, and climate-conscious growth will be key, and will help ensure firms are well-positioned to capitalise on positive momentum as the economy picks up and confidence strengthens."  

UK mortgage lending to slow as affordability challenges weaken housing demand

Growth in UK mortgage lending is forecast to dip in 2026 to 2.5% (net) from 3% (net) in 2025, as limited improvements in affordability and borrowing costs subdue housing demand. 

Housing affordability is likely to remain a challenge in the near future, with house prices remaining high and mortgage rates unlikely to fall significantly below current levels. However, improving economic conditions and a strengthening jobs market should lead to a pickup in housing demand, with mortgage lending forecast to rise to 3.3% (net) in 2027 and 3.5% (net) in 2028, the highest levels since 2022. 

UK consumer credit demand to remain steady over the next few years

UK unsecured credit is forecast to grow by 5.8% (net) in 2026, a marginal drop on the 6.1% (net) recorded in 2025. Even though consumer credit remains expensive, demand is expected to remain steady over the coming years. This is largely due to a combination of weaker real income growth and greater confidence among the UK’s largest spenders resulting in many saving less and relying more on credit to fund purchases. Consumer credit lending growth of 5.7% (net) is forecast in 2027, slowing slightly to 5.3% (net) in 2028.   

Default rates to remain low and stable

Write-off rates on loans to UK businesses are expected to remain low and stable. Despite ongoing uncertainty, lower debt-service levels and healthy balance sheets are expected to cushion the impact of slowing economic growth. Rates are forecast to remain at 0.13% in 2026, 2027 and 2028 (in line with 0.13% in 2025).  

Default rates on UK mortgages are expected to rise a little further but remain low by historical standards. They are forecast to rise to 0.006% in 2026 (from 0.005% in 2025) and 0.007% in 2027 and 2028, as increasing numbers of homeowners on fixed rate mortgages refinance onto deals with higher rates. 

Defaults on UK consumer loans are also expected to stay low over the next few years, remaining at 0.8% in 2026 (unchanged from 2025), rising marginally to 0.9% in 2027 and 2028.  

Dan Cooper, EY UK & Ireland Head of Banking and Capital Markets, concludes: “While trading conditions are likely to be challenging this year for businesses both big and small, and the banks supporting them, it's important to recognise that the outlook is still one of growth. The pace of growth is set to pick back up from as early as 2027 as the UK economy strengthens, and all signs point to 2026 being a temporary dip, rather than a long-term slowdown. The UK's banks are well capitalised and increasingly resilient and, with a brighter outlook ahead, now is not the time for leaders to press pause on their strategic priorities."

Notes to editors:

About the EY ITEM Club

The ITEM Club is the only non-governmental economic forecasting group to use the HM Treasury’s model of the UK economy. Its forecasts are independent of any political, economic or business bias and this independence is underpinned by the untied sponsorship of Ernst & Young LLP.

ITEM stands for Independent Treasury Economic Model. HM Treasury uses the UK Treasury model for its UK policy analysis and Industry Act forecasts for the Budget. ITEM’s use of the model enables it to explore the implications and unpublished assumptions behind Government forecasts and policy measures. Uniquely, ITEM can test whether Government claims are consistent and can assess which forecasts are credible and which are not.

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