Forecasts have suggested that consumer borrowing from UK banks is set to plummet at the fastest rate on record this year, thanks to the recession caused by the coronavirus pandemic. The pandemic has seen a major change in how banks operate and their lending patterns. Whilst lending to businesses continues to increase thanks to lockdown measures implemented across the country, consumers have been actively cutting back. Banks across the country are expected to lend 15.9% less to consumers making it the steepest slowdown in consumer lending in a generation.
Figures from the Bank of England also showed that thanks to restrictions placed on businesses and social lives consumers repaid £15.6 billion of consumer debt between March and June. £7.4 billion of that was repaid in April which was the first full month that consumers across the UK faced restrictions on their daily lives.
Whilst consumer lending has been down it’s not all bad news for UK banks as loans to businesses continue to rise. The increase in lending to small and medium sized firms across the UK is thanks in part to the government backed loans that formed a major part of the Chancellor’s plans to help the economy towards recovery.
Prior to the pandemic business lending had faced a decline over the past decade however forecasters now predict that business lending will grow by 14.4% this year compared to 2019, an increase that would be the largest in 13 years.
The increase in business borrowing is expected to cushion some of the blow that banks are expecting from written off loans worth billions of pounds. Major banks including HSBC, Barclays, NatWest Group and Lloyds Banking Group have put aside £9 billion collectively during the first quarter of 2019 to cover bad debts.
Whilst the bounce back may be slow, forecasters are expecting consumer lending will slowly return in 2021 although it’s unlikely to reach pre-pandemic levels until at least 2022. Meanwhile mortgage lending is forecast to rise by 2.6% with rising unemployment levels resulting in the slowest increase in five years.
