Financial services fixed for 'strong' growth in 2016
Britain’s financial services industry is set for a year of strong growth, despite concerns about China’s economic slowdown and low oil prices, according to a new economic outlook.
Research by the EY ITEM Club found that the sector is being boosted by an “across the board” return to growth in borrowing by businesses, consumers and home buyers.
However, the study warned that a further delay in rising the UK’s interest rate is causing concern, and the industry now needs reassurance that rates will rise before early next year.
The outlook also said that the profitability of insurers is being constrained by the new pensions freedoms, introduced in April 2015.
Net business lending is expected to increase by £15bn and grow by an average of 5% per year from 2016 to 2019, thanks to low borrowing costs and positive business investment growth. This compares to an average fall of 6% from 2009 to 2014.
Growth in consumer credit is forecast to be 5.7% in 2016 and average 4% growth to 2019, lifted by a predicted increase in consumer spending.
Net mortgage lending should increase by 3.4% in 2016, which is the fastest growth since 2007. The boost in borrowing by home buyers will be boosted by a steady growth in house prices and household incomes.
Omar Ali, EY UK Financial Services Managing Partner, said that until rates rise, banks will “struggle to increase the gap between lending and savings rates”.
He said: “2015 was the first year for some time that the underlying economic fundamentals were good enough to support an across-the-board return to growth in borrowing by consumers, home buyers and firms. If we can plot a course through the policy and politics, 2016 looks set to be a better good year.”