Lending to see £29bn increase

Net mortgage lending is also forecast to increase by 1.2% as housing market activity picks up, although this is still below the three percent averaged in the pre-pandemic period between 2015 and 2019 – driven in large part due to rising interest rates. This reflects the fact that the housing market is likely to underperform when compared to the wider economy.  

Unsecured lending, meanwhile, is now expected to rise by 6.5%. In contrast, business lending is forecast to contract this year by 0.8% – although this is an improvement on the previous forecast of a -3.8% contraction as financial pressures from high inflation and supply frictions ease.  

Overall, falling inflation, lower-than-expected energy bills and a resilient jobs market means UK GDP is expected to grow by 0.2% this year, avoiding the previously predicted contraction.  

Anna Anthony, UK financial services managing partner at EY, said: “We’re still on the path to economic recovery and many businesses and consumers – particularly the most vulnerable in society – continue to face significant cost-of-living pressures.  

“This cannot be underestimated, and appropriate support must still be provided, but we are in a more optimistic place than we were a few months ago. The recession that many thought was inevitable is now likely to be avoided and energy prices have fallen, boosting consumer and business sentiment.  

“Despite recent volatility in the global banking sector, the EY Item Club has been able to upgrade its growth forecasts for UK bank lending this year, which is positive news. While encouraging, enthusiasm should be measured, in the short-term at least.  

“UK banks continue to face a tough environment with historically low lending growth rates. However, the sector is in a strong capital position and continues to provide ongoing support to customers, businesses and the wider economy.  

“With economic conditions expected to improve over the course of 2023 and into 2024, banks will be able to devote more of their time to other critical areas such as digital innovation, sustainability and governance.”