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.
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Weather bomb in pictures: Storms cuts power for tens of thousands – and snow is on the way
Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
Russell Brand was rendered speechless on Question Time by this man
Fury at Airbus after it hints the super-jumbo may be mothballed
Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Shock poll shows voters believe Ukip is to the left of the Tories
New era of cheap oil 'will destroy green revolution'
Nigel Farage's approval rating hits record low as popularity suffers in wake of Ukip sex scandal
Ukip founder Alan Sked and Nigel Farage 'begged Enoch Powell to stand as a candidate'
iJobs Money & Business
£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...
£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...
£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...
£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...