Britain’s banks are more optimistic about the prospects of an economic recovery than their European counterparts, according to a new study that also shows lending is predicted to rise across all sectors of the economy.
However, today’s report from accounting firm EY came as Bank of Scotland said the private sector economy north of the Border was growing at its weakest pace since last May, amid a slowdown in the dominant services sector. Manufacturers were also hit by the sharpest fall in new export orders since October 2012.
Although BoS said business activity across the manufacturing and services sectors rose for the 15th month in a row in December, growth eased for the third consecutive month.
The bank’s headline purchasing managers’ index (PMI) dipped to a seven-month low of 54.5, down from 55.2 in November. However, the index remained above the 50 mark separating growth from contraction, and chief economist Donald MacRae said the recovery “looks set to persist throughout 2014”.
Finance secretary John Swinney said: “2013 has seen improvements in both output and the jobs market in Scotland but challenges remain. That’s why there will be no let-up in the Scottish Government’s determination to secure economic growth through our investment programme in skills and capital projects.”
Iain Gray, Scottish Labour’s finance spokesman, said: “These figures illustrate exactly why we cannot be complacent about economic recovery.”
However, EY’s European banking barometer found that 74 per cent of senior bankers in the UK expect economic conditions to improve this year, compared with a Europe-wide figure of 56 per cent.
The UK was also the only country covered by the study where all sectors were predicted to enjoy an upturn in lending, with small companies and those focused on healthcare, property and media and telecoms tipped to benefit the most.
The upbeat findings echo the Bank of England’s most recent credit conditions survey, which said the availability of loans for businesses was expected to pick up during the first three months of this year, despite the Bank reporting a record £4.7 billion contraction in net business lending in November.
Omar Ali, head of UK banking and capital markets at EY, said: “As the wider economic recovery continues to gain pace, banks are more confident to lend to both consumers and companies alike. After years of tight credit restrictions, banks are now able to be more bullish in their attitudes towards lending.”
In an attempt to improve the supply of credit for SMEs, the Bank of England’s Funding for Lending Scheme – which offers cheap funds to banks on condition they pass on the benefits – has withdrawn its support for the housing market, and economists believe that firms’ appetite for credit is picking up as the outlook brightens.
Last week, the National Institute of Economic & Social Research (NIESR) said the UK economy is likely to have grown by 1.9 per cent last year – faster than the 1.6 per cent predicted by the Bank of England and well above the 0.3 per cent expansion seen in 2012.
The Office for National Statistics is due to publish its first estimate of UK GDP growth for the final three months of 2013 on 28 January. The NIESR has predicted that the rate of expansion eased to 0.7 per cent, down from 0.8 per cent in the third quarter.