Bank lending to bounce back as bad debts fall

Bank lending to businesses is set to rise for the first time in four years as risk appetite starts to recover, handing a potential lifeline to smaller firms and the UK's growth prospects, experts have claimed.

Although lending shrank by 5 per cent last year, to the lowest level since 2006, the outlook over the next two years appears brighter, according to the accountancy Ernst & Young.

The firm predicts that bank lending will grow by 3.5 per cent to £440bn this year, and 8.5 per cent to £477bn in 2014.

Andy Baldwin, head of financial services at Ernst & Young, said: "In recent months much of the media and political attention has focused around banking competition on the high street, and you might be forgiven for thinking we were still in the midst of the banking crisis, but behind the scenes banking fundamentals have quietly been improving, and banks are now in a better position to be able to provide funds to the wider economy."

He added: "Our analysis suggests the main drivers of banks' return to lending will be better access to wholesale funding and a decrease in non-performing loans, rather than the Funding for Lending scheme making a material difference.

"That said, the scheme is making a contribution in shifting emphasis and encouraging lending expansion across the sector, while also helping to restore confidence and stimulate demand from consumers and SMEs [small and medium-sized enterprises] alike."

Total loan write-offs are forecast to fall to just 0.56 per cent of total loans this year, some £9.3bn, having peaked at £11.6bn in 2012. Ernst & Young said write-offs are expected to decline even further over the next few years, meaning that by 2016 they will make up just 0.34 per cent of total loans.

"In some ways the current recession curve has not evolved as you might have expected," Mr Baldwin added. "We have seen fewer insolvencies and repossessions than in previous recessions, arguably because banks have continued with these weaker loans rather than foreclosed on them."

Meanwhile, the UK's record trade deficit could be slashed by £20bn over the next decade and 200,000 new jobs created if help is given to the country's mid-sized manufacturing firms, a report from the Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA) will say today.

Despite George Osborne's stated ambitions of rebalancing the economy away from consumption to manufactured exports, the UK's trade in goods deficit hit £106bn in 2012, up from £100bn in 2011. A 20 per cent depreciation of sterling since the global financial crisis has had a disappointing impact on the UK's exports, which are still below their peak in 2006.

Analysts have blamed the crisis in the eurozone – the destination for half of Britain's exports – for the trade weakness, but the RSA's report, Making at home, owning abroad, says that the figures should improve as mid-size UK manufacturing firms curtail their practice of outsourcing manufacturing to the Far East and bring production closer to domestic consumers.

It cites rising oil costs, environmental emissions regulations and changing patterns of demand as "large-scale global trends" which will encourage firms to manufacture more at home.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
News
ebooksNow available in paperback
News
The 67P/CG comet as seen from the Philae lander
scienceThe most important scientific breakthroughs of 2014
Arts and Entertainment
Ian McKellen as Gandalf in The Hobbit: The Battle Of The Five Armies
film
Sport
football
Arts and Entertainment
Sarah Koenig, creator of popular podcast Serial, which is to be broadcast by the BBC
tvReview: The secret to the programme's success is that it allows its audience to play detective
News
Ruby Wax has previously written about her mental health problems in her book Sane New World
people
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Marketing Services Manager - (communications, testing, DM)

£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas