UK firms borrowed £35.5bn last year, and are forecast to borrow £26bn in 2021, according to EY’s Financial Services Forecast.
Mortgage lending remains set to rise by 2.3% this year, and 2.6% the following year, which is down slightly from the 3% growth in 2020 as demand plateaus.
Anna Anthony, UK Financial Services’ managing partner at EY, said: “Financial services firms entered the pandemic in a position of capital strength and have continued to support the economy and business through one of the most testing periods we have ever faced. That being said, there are a significant number of current challenges, and more that lie ahead.
“By the end of this year, businesses will have borrowed in the region of £60bn net since the start of the pandemic, which is a colossal amount, especially as for many it is just about survival, not expansion or growth. And the prospect of some, if not many firms, not being able make the required repayments is concerning for all involved.”
She added: “As well as rising loan losses, banks are contending with another year of squeezed interest margins and subdued consumer lending. Insurers too are facing a tricky year, with ongoing COVID-19 related pay-outs, persistent low interest rates and the impact of the FCA pricing review.
“However, it’s not bleak across the entire sector, and the outlook is a little more positive for UK asset managers in 2021 and beyond, with assets under management (AUM) set to rise in 2021 and 2022 as global markets recover.”