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UK business activity grows at its fastest pace since 1998

UK business activity has grown at its fastest pace for more than two decades, according to early economic data for May.

The closely-followed IHS Markit/CIPS Flash UK Composite PMI report came in at 62 for the month, up from a reading of 60.7 in April.

Any reading above 50 represents growth in output.

The reading signals that the UK has seen its strongest growth since the index began in 1998, on the back of “strong” growth in both the manufacturing and services sectors.

Relaxed pandemic restrictions and pent-up demand from consumers also helped to spark a rise in employment, with the figures highlighting the fastest rise in private sector employment for more than six years.

The services sector – which includes hospitality firms which have benefited from eased restrictions this month – saw a reading of 61.8 for the months, marginally below analyst predictions.

Meanwhile, the manufacturing reading surged to 66.1, the highest figure since the survey began.

Chris Williamson, chief business economist at IHS Markit, said: “The UK is enjoying an unprecedented growth spurt as the economy reopens.

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“Factory orders are surging at a record pace as global demand for goods continues to revive, and the service sector is reporting near-record growth as the opening up of the economy allows more businesses to trade.

“Business confidence has meanwhile hit an all-time high as concerns about the impact of the pandemic continue to fade.”

However, the rebound also resulted in price inflation with costs pressures at “the strongest for nearly 13 years”.

Duncan Brock, group director at CIPS, said: “Manufacturers keen to secure raw materials for the coming months were forward buying with greater intensity and contributing to the ongoing poor performance of supply chains as delivery times increased to record-levels.

“This in turn compounded the number of shortages and impacted on the costs of goods and raw materials.”

Source: Irvine Times

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UK inflation doubles in April as lockdown restrictions ease

UK inflation has more than doubled in April as energy and clothes prices pushed the consumer price index up to 1.5% amid the easing of lockdown restrictions.

A rise from March’s 0.7% readout, the figure comes more in line with the Bank of England’s expected rate of 2% by the end of the year.

Statistics published by the Office for National Statistics (ONS) identified rising household utility, clothing and motor fuel prices as the biggest drivers of the increase which was still partially offset by a large downward contribution from recreation and culture.

Gas and electricity saw big jumps with price rises of 9.4% and 9.1% respectively between March and April driven by a spike in global demand for wholesale gas.

A bounce in oil prices from $20 per barrel last year to around $70 today also put pressure on inflation and will continue to do so as demand increases as the global economy opens up again.

Ambrose Crofton, global market strategist at JP Morgan Asset Management, said that “a confluence of factors including Brexit-related trade frictions, rising commodity and freight prices are adding cost-push pressure” to the manufacturing side of the economy.

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End of furlough scheme could keep inflationary pressures at bay

Inflation is likely to increase further throughout the year as “the economy gradually reopens, the recovery picks up steam and supply constraints intensify in the sectors that were hit by the pandemic,” according to Silvia Dall’Angelo, senior economist at the International Business of Federated Hermes.

Dall’Angelo said higher wholesale gas prices could lead to hikes in regulated utility prices later in the autumn, pushing CPI inflation close to 3%.

But she notes that as inflationary drivers are “set to be largely cost-push and hence temporary” with residual disruption to the labour market likely to show up at the end of the furlough scheme in September, underlying inflationary pressures could be contained.

Economic recovery could be a Trojan horse for inflation

However AJ Bell financial analyst Laith Khalaf said that “at current levels, UK inflation is nothing to fret about, but there is rising concern that the fiscal and monetary response to the pandemic has sown the seeds of an inflationary scare further down the road.”

The Bank of England showed no signs of tightening the reins just yet as it announced it would make no changes to monetary policy earlier this month with interest rates remaining at 0.1% for now despite its improved economic forecasts.

Khalaf said: “For the moment, the Bank of England is dismissing consumer price increases as a natural bounce back from the depths of the pandemic last spring. But the economic recovery could be a Trojan horse, smuggling inflation into the UK, right under the nose of central bankers.”

Khalaf noted that inflationary fears are already starting to creep into the market with the 10-year gilt yielding 0.9%, up from 0.2% at the beginning of the year.

Despite this Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson, notes real yields “remain very negative as guidance about interest rates continues to hold down nominal yields, even in the face of expected strong growth and rising inflation”.

“While breakeven rates on UK gilts are towards the upper end of where they have been over the last two decades, it is not clear that they are at a level that should be unduly concerning for the Bank yet.”

By Harriet Habergham

Source: Portfolio Adviser

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Inflation doubles as fuel, clothing and ice-cream all soar in price

Inflation doubled in April and could do the same again by the end of the year, some economists warned today, as pressure grows on the Bank of England to raise interest rates.

While that would risk curtailing the economic recovery, some say rates are simply too low at 0.1% and that the Bank is underestimating the chance of inflation spiralling out of control.

Prices rose at 1.5% in April up from 0.7% in March, higher than expected. Gas, electricity and petrol all jumped, as did more frivolous items such as chocolate and ice-cream – there has been talk of a 99 Flake shortage in the summer.

Ernst & Young says inflation will hit 2.7% in late 2021 or early 2022. “Further rises in consumer price inflation are highly likely,” says E&Y.

The Bank is supposed to keep inflation at 2% — it has undershot that target for the duration of the pandemic and for the last 21 months running.

But as the UK emerged from lockdown, pent up demand from consumers saw a spending splurge. By some estimates there is £60 billion of “excess” cash in bank accounts ready to be spent.

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Steven Cameron, pensions director at Aegon, said: “As the door to the economy reopens the expectation is that consumers will rush to spend savings built up over lockdown. There is concern that this creates inflationary pressures that pushes rates well beyond both the target and anything that consumers have had to deal with in recent years or for many in living memory.”

The most bearish economists note that there are price pressures in the pipeline on many vital goods, including energy and timber.

And they say that if you strip out a temporary cut in VAT on hospitality, inflation is actually already at 3.2%.

In the US, where government spending is even higher than in the UK, inflation hit 4.2% in April.

Ed Monk, associate director for Personal Investing at Fidelity International commented: “Inflation has started to take off. More than doubling to 1.5% in April, it is now closing in on the Bank of England’s 2% target and could blow past that if the demand in the economy continues to build in the coming months.”

Simon French at Panmure Gordon said: “These numbers confirm that inflation is going to pick up strongly this year, aided by comparisons with such depressed prices in 2020. However the Chancellor should hold his nerve. Inflation ultimately is a sign the economy is reopening, jobs are being created and livelihoods are being saved. To try and deflate the UK economy now would be a policy mistake.”

Petrol rose by 1.8p a litre to 125.5p. Gas and electricity bills both rose by more than 9%.

Ruth Gregory at Capital Economics said: “The rise in CPI inflation from 0.7% in March to 1.5% was almost entirely driven by energy price effects, which will only be temporary. We doubt a sustained increase in inflation that would concern the Bank of England will happen until late in 2023.”

By Simon English

Source: Evening Standard

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UK economy recovering strongly as lockdown measures are eased

Further evidence emerged Tuesday to show that the UK economy is recovering strongly, with the number of people on payroll increasing as coronavirus lockdown measures are eased.

The Office for National Statistics found that the number of payroll workers rose by 97,000 between March and April, a period when some lockdown restrictions were eased. At the end of March, pubs and restaurants were allowed to reopen in an outdoor setting, for example.

The reopening meant many workers who had been idle over the previous months of lockdown could return to their jobs even though activity levels weren’t as high as they would have been if indoor serving was allowed.

Though the most recent figures show an improvement, the U.K. has clearly seen jobs lost during the pandemic, with 772,000 fewer people on the payroll than before it struck in spring 2020.

The statistics agency also found that the overall rate of unemployment in the U.K. fell once more, to 4.8 per cent in the three months to March, down from the equivalent figure for February of 4.9 per cent.

This came despite the country being in tight lockdown in the first three months of 2021, with the statistics agency saying many unemployed were no longer looking for work.

The agency also said there were 1.6 million people unemployed in the three months to March, down 121,000 on the previous three-month period.

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The figures add weight to the Bank of England’s recent prediction that the anticipated peak in unemployment will be far lower than anticipated as lockdown restrictions are eased further following the sharp fall in coronavirus infections and the rapid rollout of vaccines. It now expects the jobless rate to peak at 5.5 per cent, against 7.75 per cent previously.

On Monday, the lockdown was eased further across most of the U.K., with pubs and restaurants allowed to reopen indoors. Cinemas and theaters were also allowed to reopen while the ban on foreign holidays was partially lifted, though the number of destinations deemed safe remains limited.

The extension of the job retention program, which has seen the government pay the bulk of workers unable to work because of lockdown restrictions, has helped soften the blow to unemployment. The growth rebound, which the Bank of England expects to hit 7.25 per cent this year, is set to see most furloughed employees return to work when it ends.

The Resolution Foundation think tank cautioned though that the labor market is unlikely to return to its pre-crisis structure given fundamental changes in the way people work and shop.

Adapting to this changed world will be a key challenge for workers, and policy makers, in the years ahead,” said Hannah Slaughter, economist at the Resolution Foundation.

Source: Business Standard

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UK economy is set to grow at its fastest pace since the Second World War

The UK economy is set to grow at its fastest pace since the Second World War, overtaking the US, according to Bank of England economist Andy Haldane.

Low Covid infection rates and vaccinations are leading to a surge in consumer spending, he said.

The unemployment rate is also lower than expected.

However, there is a risk of 1970s-style inflation rates with “boom turning to bust”, he added.

Writing in a column for the Daily Mail, Mr Haldane said: “Spring has sprung for the UK economy. This year it is set to grow at its fastest pace since the Second World War.

“It is easy to see why. As Covid infection rates have fallen sharply and the vaccination programme has been rolled out, the health risks facing us have plummeted.”

Mr Haldane, who has previously warned against pessimistic views of the economy, said consumers are returning to shops, pubs and restaurants with retail spending above pre-Covid levels.

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The housing market is also booming, while hiring and investment among businesses is also picking up, he said.

Mr Haldane predicts as many new jobs will be created this year that are lost with unemployment figures revised down from 7.75% to less than 5.5%.

“A year from now, it is realistic to expect UK growth to be in double-digits, activity to be comfortably above pre-Covid levels and unemployment to be falling,” Mr Haldane said.

“Such a tennis ball bounce in the UK economy would put it at the top of the G7 growth league table.”

Mr Haldane, who sits on the Bank of England’s Monetary Policy Committee, predicted a sharp, V-shaped recovery last year which did not materialise.

Official figures published earlier this week showed the UK economy shrank by 1.5% in the first three months of 2021, but gathered speed in March as lockdown restrictions began to ease.

The reopening of schools and strong retail spending helped the economy grow 2.1% in March, its fastest monthly growth since last August.

Mr Haldane said if health and unemployment risks continue to remain low, spending is likely to continue.

However, he warned a rise in inflation levels could turn boom to bust “derailing the country’s recovery”.

“The most likely cause of such a bust, history tells us, is an unwanted bout of inflation.”

He added: “And experience during the 1970s and 1980s demonstrates that, once out of the bottle, the inflation genie is notoriously difficult to get back in.”

Mr Haldane estimates inflation levels by the end of this year could be above its 2% target and has voted for the Bank of England to scale back quantitative easing.

“Doing so now reduces the risk of a handbrake turn – for borrowing costs and the economy – down the road, with all of the disruption this would entail for our jobs and finances,” he said.

Source: BBC

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Increases in mortgage arrears expected this year

MORE home-owners are expected to fall into mortgage arrears this year as the economic repercussions of the coronavirus pandemic continue to be felt, according to UK Finance.

The trade association, which represents the banking and finance industry, said mortgage arrears remained close to historically low levels in the first three months of 2021.

From March 2020 to the end of March this year, lenders were offering payment holidays of up to six months to borrowers whose finances had been affected by the coronavirus pandemic.

Nearly 2.9 million mortgage payment deferrals were granted while the scheme was active.

For borrowers who need additional support beyond the six-month payment holidays, lenders are continuing to offer tailored support.

UK Finance’s latest figures show a small increase of 230 mortgages in arrears compared with the previous quarter, with a total of 77,640 home owner mortgages in arrears of 2.5% or more of the outstanding balance.

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Within the total, there were 27,280 mortgages with significant arrears representing 10% or more of the outstanding balance. This was an increase of 620 on the previous quarter.

UK Finance said this figure has slowly increased since early 2020 but from a low base, largely driven by customers who had several missed payments before the pandemic.

Eric Leenders, managing director of personal finance at UK Finance, said: “While there was a slight rise in total arrears in quarter one 2021 compared to the historic low levels seen before the pandemic, the additional support from lenders has helped many mortgage customers stay out of arrears.

“With the economic impact of Covid-19 continuing to be felt, we anticipate there will be further increases in mortgage arrears during 2021.

“Any customer who is concerned about their finances should contact their lender early to discuss the options and tailored support available to them.”

Only 190 home-owner mortgaged properties and 180 buy-to-let mortgaged properties were repossessed in the first quarter of 2021.

Although Financial Conduct Authority (FCA) guidance allowed firms to re-start litigation activity from November 2020, lenders voluntarily committed to pause repossessions in line with a “winter truce” from mid-December 2020 to mid-January 2021, UK Finance said.

It added that repossessions are expected to eventually increase due to the backlog of cases that did not take place in 2020.

These cases will have been in train before the pandemic, it said, adding that repossessions are always a “last resort”.

Source: Irish News

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UK economy, gearing up for recovery, grows more than expected

UK economy grew more strongly than expected in March as it gathered speed for a bounce-back from its coronavirus slump of 2020, official data showed on Wednesday.

The 2.1% growth from February was led by the reopening of schools which, alongside COVID-19 testing and vaccinations, pushed up activity in the public sector and by retailers as consumers spent some of their lockdown savings.

There was also a burst of work in the construction sector ahead of the expiry of a tax break for home-buyers.

Analysts polled by Reuters had expected monthly growth of 1.3% for world’s fifth-biggest economy.

“Businesses and the government alike will feel this data marks a turning point,” Ana Boata, head of macroeconomic research at trade credit insurer Euler Hermes, said.

“With the ongoing easing of restrictions, confirmed this week by the prime minister, there’s hope that this could be the start of a long hot summer for British businesses.”

Over the first three months of 2021, when the country was under a third lockdown, gross domestic product shrank by 1.5%, the Office for National Statistics said.

Although a less severe hit than initially feared, Samuel Tombs, an economist with Pantheon Macroeconomics, said it meant Britain almost certainly remained the laggard among the Group of Seven rich countries for the fourth quarter in a row.

However, British GDP looked on course grow by 5% in the April-to-June period “which should mean that the UK finally hands over the wooden spoon to another G7 economy.”

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The BoE said last week it expected the UK economy would recover quickly as the country speeds ahead with Europe’s fastest vaccination programme and coronavirus restrictions are lifted.

Its forecast for 7.25% growth in 2021 would be the fastest since a Second World War rush to rearm although by comparison GDP collapsed by 9.8% in 2020, its deepest slump in over three centuries.

“Despite a difficult start to this year, economic growth in March is a promising sign of things to come,” finance minister Rishi Sunak said.

“As we cautiously reopen the economy, I will continue to take all the steps necessary to support our recovery.”

Britain’s economy remained 8.7% smaller than at the end of 2019. The BoE expects it will be back to its pre-pandemic size by the end of this year.

MORE REOPENING AHEAD

Prime Minister Boris Johnson allowed non-essential shops to reopen and outdoor hospitality to resume in April in England and there have been signs that the economy accelerated in response.

Further relaxations are due to take place next week before the lifting of almost all remaining restrictions in late June.

The ONS data showed Britain’s dominant services industry grew by 1.9% in March from February, its strongest growth since last August, while manufacturing and construction also grew more strongly than expected by analysts in the Reuters poll.

Separate trade figures showed Britain imported more goods from non-EU countries than EU countries during the first quarter for the first time since records began in 1997.

The ONS warned it was too soon to say if this was the start of a trend or just short-term disruption.

“Exports of goods to the EU continued to increase in March and are now almost back to their December level,” ONS statistician Darren Morgan said. “However, imports from Europe remain sluggish.”

Business investment fell by almost 12% in the January-March period. The ONS said some companies brought forward investment plans to late 2020 to avoid disruption caused by leaving the EU’s Single Market while others delayed plans for early 2021 to take advantage of a new tax break that launched in April.

By William Schomberg, Andy Bruce

Source: Reuters

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UK economy contracts in first quarter, but rebounds in March

Coronavirus restrictions saw the UK economy contract at the start of 2021 but the hit was smaller than first feared as growth rebounded in March, according to official figures.

The Office for National Statistics (ONS) revealed that gross domestic product (GDP) – a measure of the size of the economy – fell by 1.5% between January and March as lockdown took its toll.

A resilient performance in March helped soften the blow, with GDP rising by a better-than-expected 2.1% month on month – the fastest growth since August 2020 – despite restrictions remaining firmly in place.

The ONS said the reopening of schools in March and solid retail spending helped drive the recovery.

Chancellor Rishi Sunak said: “Despite a difficult start to this year, economic growth in March is a promising sign of things to come.”

It comes after GDP also lifted by an upwardly revised 0.7% in February as the UK economy becomes more adept at weathering Covid lockdowns.

But this was not enough to offset a 2.5% fall in January – revised down by the ONS from a previous 2.2% estimate – at the start of the lockdown.

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The ONS added that first-quarter GDP was still 8.7% below levels seen before the pandemic struck, though the gap narrowed in March to 5.9% below the pre-Covid monthly level.

Darren Morgan, ONS director of economic statistics, said: “The strong recovery seen in March, led by retail and the return of schools, was not enough to prevent the UK economy contracting over the first quarter as a whole, with the lockdown affecting much of the services sector.”

Experts expect GDP to recover strongly from the second quarter onwards as restrictions lift and the rapid vaccine rollout boosts household and business confidence.

The Bank of England last week hiked its 2021 growth outlook to 7.25% – which would be the best year of growth since the Second World War.

ING economists are pencilling in growth of nearly 5% between April and June, given the lifting of further restrictions on May 17, including indoor hospitality.

The March rebound was helped by a recovery in the hard-hit services sector, which grew by 1.9% in the month, according to the ONS.

It said retail sales “continued to show strength”, rising by 2.9% in March, though schools and education output was the biggest driver of the services growth.

The construction sector also powered ahead, with growth of 5.8% in March to recover above pre-pandemic levels, while manufacturing grew for the second month in a row, by 2.1%.

Alpesh Paleja, lead economist at the CBI business group, said: “Households and businesses have clearly adapted better to working and living under Covid restrictions, despite the brutal cost of doing so.

“A range of indicators, including CBI business surveys, point to a rebound in activity heading into summer – with the economy opening up and pent-up demand waiting to be unleashed.”

Trade figures also released by the ONS on Wednesday showed a shift away from EU countries since Brexit.

Mr Morgan said: “Exports of goods to the EU continued to increase in March and are now almost back to their December level.

“However, imports from Europe remained sluggish in the first three months of the year, being outstripped by non-EU imports for the first time on record.”

The ONS said the total trade deficit, excluding precious metals, narrowed by £8.4 billion to £1.4 billion in the first quarter.

Source: Central Fife Times

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Second-charge optimism is shining through, according to the latest figures

The latest figures for the second-charge market, from the Finance & Leasing Association (FLA), make for positive reading.

It found that the value of new business for March came to £88m, the most positive month for new lending in a year, while the number of new loan agreements is now unchanged from last March.

It is an encouraging demonstration of how the market has picked up from the difficulties posed by the pandemic.

Fiona Hoyle, the director of consumer and mortgage finance at the FLA, said that members of the trade body were “increasingly optimistic” about the outlook for the market, and in my view that optimism is shining through in the way that lenders have behaved over the last couple of months.

There’s no escaping the fact that lenders in the second-charge market are raising their game and revamping, not only by product, but also by the way they lend.

Some are competing on price, unveiling new product ranges that are genuinely eye-catching on rate alone, while others are looking again at their lending criteria and identifying ways to open up their products to groups of borrowers who might ordinarily be excluded from the seconds’ sector.

What’s happening across the board, even from those lenders who aren’t adjusting their products, is a wholesale improvement in the level of service on offer.

Whether it’s greater use of technology or simply a revision in their lending processes, the industry as a whole is doing a fantastic job in looking at how it works with fresh eyes, and finding new, innovative ways of delivering a more efficient and satisfying experience for everyone involved in each case.

Compare the market today to the seconds market we saw just a few months ago, and the difference is extraordinary.

This is a market where the lenders are not just open for business, they have a particularly strong appetite to lend, and are launching products that opens up this sector to a wider range of prospective borrowers.

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The road ahead

This positive approach from lenders would be encouraging enough in normal times. But these aren’t normal times, with the clear expectation that there are some future headwinds.

There are plenty of borrowers whose finances have been somewhat tested over the last 12 months.

Some will have raised debt to keep their heads above water, and with the prospect of more job losses ahead, there’ll unfortunately be a rising number of homeowners in a similar position in the months to come.

For these borrowers, the prospect of cutting the cost of those debt repayments by consolidating those loans through a second-charge mortgage will be incredibly attractive.

That’s a whole swathe of new borrowers for whom a second-charge mortgage may be the most suitable option.

It’s not just borrowers who have had financial difficulties though. We’ve all spent far more time than usual at home over the past 12 months, and there have been an awful lot of conversations across the country about how we could adjust our homes to better meet our new circumstances, particularly for those who are going to be working at home for at least part of the week for the foreseeable future.

Significant numbers of those homeowners won’t want to disturb their existing mortgage, and incur ERCs that come from remortgaging for a higher amount, but have sufficient equity built up in their property, that a second-charge mortgage can adequately access to raise sufficient funds to pay for their intended home improvement project.

Hoyle said that the FLA expects to see a “strong rebound” in the second-charge market over the next year, but frankly I think that may be underplaying it.

The number of people for whom a second-charge loan could help is only going to increase, and this, coupled with a positive approach from the industry’s lenders provides the prospect of promising times ahead for seconds.

By Barney Drake

Source: Mortgage Introducer

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UK business borrowing forecasts fall by £7bn on recovery hopes

Forecasts for UK business borrowing have been slashed as the economy rebounds from the Covid-19 pandemic more quickly than anticipated.

Banks are set to lend £19bn to British companies this year, up four per cent year on year but down from the £26bn forecast in February.

Growth is set to slow further in 2022 to 1.6 per cent as reliance on emergency funding declines and firms focus on shoring up their balance sheets, according to forecasts by the EY Item club.

The predictions are based on the government’s roadmap for easing Covid-19 lockdown restrictions.

Banks lent businesses £35.5bn in net terms last year — an eight per cent year on year increase — mainly to provide support during the pandemic.

Net lending via credit cards and personal loans also turned negative in 2020, falling by almost 10 per cent in the first decline since 2012.

But demand for consumer credit is expected to pick up again this year and return to almost pre-pandemic levels, fuelled by a surge in spending as restrictions are eased.

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By contrast, mortgage lending activity is expected to slow down next year as the end of the stamp duty holiday and higher unemployment weigh on demand.

“Given how difficult the last 15 months have been for millions of families and businesses up and down the country, it’s encouraging that the economic recovery will be quicker and stronger than initially forecast, boosting the fortunes of businesses and sparking a rise in consumer spending. That’s not to say though that there won’t continue to be challenges ahead,” said Anna Anthony, UK financial services managing partner at EY.

“The banks will continue to support businesses and households through the pandemic and beyond, but modest lending growth on some fronts combined with the ongoing very low interest rate environment means the pressures on profitability will remain front of mind for the sector for the foreseeable future.”

Loan losses on consumer and business lending fell last year due to government support offered during the pandemic.

While banks are likely to face a rise in losses in the coming months as some businesses and consumers struggle to meet loan repayments, the increase is expected to be relatively small and far lower than the write-offs experienced after the financial crisis in 2008.

“Over a year on, the banks continue to face squeezed interest margins which will certainly affect profitability, but the level of loan defaults which initially appeared a possibility do not seem to be materialising,” said Dan Cooper, UK head of banking at EY.

“Results have been better than expected, with amendments to provisions being made accordingly. In addition, the savings built up during the lockdowns over the past year should help fuel a rise in consumer spending as the economy opens up.”

By James Warrington

Source: City AM

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