The UK financial services industry will see slower but continued growth up to 2020 despite challenges on the horizon from Brexit, according to EY analysis published on the day the UK triggers Article 50 to start the official process to leave the EU
For financial services, the rate of growth for all types of personal and business lending is expected to slow over the course of the next couple of years as real incomes weaken, but a noticeable pick-up is predicted in 2019 and 2020.
Lending to business could reach £414bn in 2017, up from £406bn in 2016, and is expected to eventually climb to £419bn in 2019 and £430bn in 2020.
Following an 11% increase in the total stock of lending last year – the fastest since 2008 - the UK banking sector will continue to grow. In 2017 the sector’s total assets are forecast to increase by 1.5%, shrinking slightly in 2018 before growth returns in 2019, leaving total assets at £7,317bn in 2020 (up from £7,036bn in 2016).
Omar Ali, EY’s UK financial services managing partner, said: ‘This is a key time for the UK’s financial services industry. Brexit and wider geopolitics have injected a level of uncertainty and volatility we have not seen for some years, but the fundamentals of the UK financial services industry remain strong.
‘Lending is predicted to increase, perhaps not as much as we had hoped, but it is still growing. This is good news for the UK as a whole as it means financial services can continue to play an important role in supporting the growth of the wider economy.’
EY’s analysis indicates the fall in sterling, coupled with the strong performance from the UK FTSE, meant 2016 delivered a far better year for assets under management (AUM) than expected. Total AUM grew by 12.3% to just over £1 trillion, well up on the previous year’s 7.7% rise. A slowdown over the next few years is expected as inflation rises, the economy slows and the effects of the depreciation of sterling begin to ease. AUM are forecast to rise by 5.1% this year to £1.1 trillion, reaching £1.24 trillion in 2020.
Ali said: ‘The return of inflation and the resulting impact on disposable incomes could have a dampening effect on demand for financial products - a 0.3% fall in real incomes may not sound like much but it is worth £3bn to the economy.
‘Despite these headwinds, this forecast should be seen as encouraging. The outlook for the UK economy is much better than many envisaged even six months ago, and compares well to other developed economies.’
