Even softer Brexit will deliver City slowdown, EY warns

The City is set to suffer a slowdown next year, although asset management will continue to see modest growth, EY warns in its latest outlook for UK financial services.

Bonds are set to decline from 15.2 per cent of AUM to 13.8 per cent on the back of interest rate rises from the US Fed and a tapering of the ECB’s asset purchase programme, while equities under management are forecast to rise 6 per cent annually between now and 2020.

Total assets under management will reach £1.3trn by 2020.

In contrast, business lending is predicted to stagnate in 2018 and 2019 before slowly climbing to £435bn by 2020, while mortgage demand is also set to dampen.

However, with inflation set to hit 3 per cent later in the year while real household incomes forecast to decline by 0.2 per cent, demand for consumer credit could rise if households attempt to compensate for the hit by borrowing more.

EY forecasts consumer loans will grow from £204bn in 2017 to £218bn in 2020.

EY’s UK financial services managing partner Omar Ali says: “Even modelling for a Brexit transitional deal, the outlook for 2018 remains tough for financial services as the impact of higher inflation is felt by households up and down the country. Business lending, mortgage lending and general insurance look set to be the hardest hit.

“Despite warnings from the Bank of England and some high-street lenders, the only type of lending that is expected to grow in 2018 is consumer credit. A return to mortgage and business lending growth is forecast for the latter stages of the decade, but this does depend on the right deal being struck with Europe.”