Lending rise as banks ease up on deleveraging

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Lending to households and businesses is likely to grow in 2013 as a “healthier” banking sector finally stops deleveraging, according to Ernst & Young’s Item Club.

It says the contraction in bank assets should amount to just £17 billion in 2013, compared to a £405bn shrinkage in 2012.

As a result, lending to businesses and households should expand at the relatively modest pace of 1.8 per cent in 2013, but will pick up to 3.8 per cent in 2014 and close to 5 per cent in 2015, Item club has forecast.

After shrinking by an estimated 7 per cent last year, lending to consumers will stabilise in 2013 and should return to growth in 2014.

Lending to corporates shrank an estimated 4 per cent last year, hitting the lowest level since 2006, but should grow by 2 per cent this year.

Carl Astorri, senior economic adviser to Item Club outlook for financial services said: “Although 1.8 per cent growth in lending may seem modest, it will be the fastest growth in bank lending since 2010 and marks the beginning of the end of the painful period of deleveraging the banks have been forced to go through. After two years of shrinking balance sheets we don’t expect the impact on the economy to be instantaneous but, as lending continues to pick up in 2014 and 2015, the money should start to trickle through to cash-starved small and medium-sized enterprises.”

Following this year’s £17bn contraction, Ernst said bank assets would start returning to growth in 2014.