Covid-19 is expected to cause UK firms’ 2020 borrowing to be over five times the amount in 2020 than in the previous year, according to the latest EY Item Club’s ‘Financial Services Forecast’.
The total stock of bank lending to businesses forecast is to close 2020 at £493bn, an 11% year on year increase, due to financial firms borrowing heavily through the pandemic.
According to the forecast, consumer credit is predicted to fall by 5.6% in 2020, which is the biggest decline since 2011.
Despite mortgage lending proving to be resilient, with growth forecast to be 3.2% in 2020 and 3.4% in 2021, new lockdown restrictions are expected to detrimentally impact this outlook.
Omar Ali, UK financial services’ managing partner at EY, said: “Financial services firms entered the pandemic in a position of capital strength and have supported the economy and business to unprecedented levels since March.
“However, rising unemployment and the ongoing challenges faced by small businesses mean the outlook for the sector is testing.”
He added: “Insurers are facing multiple challenges this year, asset managers are contending with a fall in assets under management and banks are facing squeezed interest margins, slow growth in consumer credit, and increased write-offs on loans.”