The wealth and asset management industries enjoyed a 12.3 per cent rise in assets under management in 2016, but growth is expected to slow, EY says in its latest outlook for financial services.
Sterling weakness and the strong performance from the FTSE boosted AUM over the £1.1trn mark last year and growth was well above the 7.7 per cent rise seen in 2015.
But the EY ITEM Club outlook for financial services report forecasts wealth and asset management AUM will rise to 5.1 per cent this year, hitting £1.1trn, and by 2020 will sit at £1.24trn.
While markets boosted AUM in 2016, flows have been hit at many major fund managers as political uncertainty has weighed on investor confidence.
Bonds as a proportion of assets are set to fall from 15.3 per cent last year to 13.6 per cent at the end of the decade.
Multi-asset funds, although expected to see slower growth than previous years, will rise 25 per cent between 2015 and 2019 to £192bn.
EY’s UK financial services managing partner Omar Ali says: “The return of inflation and the resulting impact on disposable incomes could have a dampening effect on demand for financial products – a 0.3 per cent fall in real incomes may not sound like much but it is worth £3bn to the economy.”
Speaking to the wider financial services sector, Ali says fundamentals remain strong despite the uncertainty and volatility brought on by Brexit and wider geopolitics.
“Lending is predicted to increase, perhaps not as much as we had hoped, but it is still growing,” Ali says. “This is good news for the UK as a whole as it means financial services can continue to play an important role in supporting the growth of the wider economy.”
Growth in the banking sector is set to slow to 1.5 per cent this year before slightly shrinking in 2018, with total assets to hit £7.3trn in 2020 from £7trn in 2016.