Lending to businesses and households to fall further

Ernst & Young ITEM Club’s recent report on the financial services sector forecasts that the UK’s double-dip recession would result in consumer credit shrinking to 10.5% this year, instead of the 7.6% forecasted just three months ago.

Corporate lending is also forecast to decline by 6.2% this year – a similar rate to last year. This will contribute to an overall fall in lending by the banking sector of 2% in 2012, sharper than last year’s 1.6% fall.

In addition to the above, the ITEM Club remarked that they are not convinced by the effectiveness of recent policy initiatives (e.g. “funding for lending”) in curbing this downward trend in lending.

The prolonged period of recession has also (slightly) raised the ITEM Club’s forecast for corporate write-offs to 2% of outstanding loans, which is the highest rate since the 1990s.

However, this is deemed to be due to us being at the peak of our current economic cycle and improved conditions next year are likely to stem the tide.

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