Borrowing boom to boost banks
Banks have been given a boost after new data predicted borrowing growth would rise throughout 2025.
After the Bank of England slashed interest rates three times in the last six months, research from EY Item Club anticipates total UK bank lending will rise to 3.7 per cent this year, up from 2.3 per cent in 2024.
The latest EY Item Club Outlook for Financial Services predicts mortgage lending growth will double to 3.1 per cent this year. This follows a sluggish year in 2023, where growth was at zero per cent before rising to 1.5 per cent in 2024.
Rising house prices and persistently high mortgage rates had mortgage lending growth steadying over time, with growth forecasts at 3.2 per cent for 2026 and 3.6 per cent for 2027.
EY UK’s Head of Banking and Capital Markets, Dan Cooper, said: “Looking to the year ahead, the increasingly positive outlook for lending and the prospect of relatively low default rates is welcome news for UK banks and their customers.”
Cooper highlighted whilst the growth rates were still “way off record-highs of past years,” the forecasts should “provide a boost to banks’ balance sheets and some breathing space”.
Britain’s Big Four Banks are all set to post annual results, with Barclays and Natwest reporting last week and each surpassing analysts’ profit expectations.
HSBC will post its annual results on Wednesday, with Lloyds to follow on Thursday.
‘Optimism must remain measured’
Martina Keane, EY’s UK and Ireland financial services leader said: “The UK’s gradual economic recovery is strengthening confidence and translating into more appetite to borrow from UK banks.
“Looking to the year ahead, if interest rates are cut further as expected, borrowing costs should fall, the capacity for household spending will grow, and stronger levels of mortgage borrowing should return after two years of little-to-no growth.”
However, Keane warned “optimism must remain measured” and potential tax rises, along with geopolitical tensions, present a “very real downside risk to market confidence and the overall outlook for growth”.
The EY Item Club downgraded its bank-to-business forecast, citing upcoming tax changes, tighter financial conditions, and global trade uncertainty.
Expectations for business borrowing growth were at 4.5 per cent, a drop from 5.6 per cent which was pencilled in back in November.
The figure would still mark an increase from 2024, where bank lending to UK businesses grew by 2.9 per cent.
Keane added: “The UK’s financial services sector has proven its resilience time and again in recent years, and now, with economic recovery turning a corner, the industry is looking to the future with optimism.”