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UK economy lost more momentum in August, PMI survey shows

UK economy – Britain’s economic recovery from the COVID-19 pandemic lost more momentum last month than originally estimated as staff shortages and supply chain issues weighed on companies in the country’s huge services sector, a survey showed on Friday.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI) fell to 55.0 in August, revised lower from a preliminary “flash” reading of 55.5 and down sharply from 59.6 in July.

Overall the survey added to signs that British economic growth has slowed somewhat in the last month or so.

The PMI marked a fifth month above the 50 threshold for growth and a record share of services companies said they were hiring staff – but they also struggled against rising costs.

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“Many survey respondents commented on long wait times to fill vacancies and an unexpectedly high staff turnover as the UK economy reopened,” said Tim Moore, economics director at IHS Markit.

A separate survey published earlier on Friday by the Recruitment & Employment Confederation also showed employers were still hunting for more staff than they were just before the pandemic, added to signs of a tight labour market after COVID-19 lockdowns and Brexit.

IHS Markit said consumer demand slowed last month after an initial post-lockdown surge.

Others said a slowing property market caused by partial withdrawal of a tax break on home purchases, a lack of tourists and Brexit trade frictions dampened growth too.

The composite PMI, which combines the services and manufacturing sectors, fell to 54.8 in August from 59.2 in July.

Reporting by Andy Bruce

Source: UK Reuters

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The UK economy is on a bumpy road to full recovery

UK economy – The economic effect from Covid-19 wasn’t actually that bad, was it? That may seem an odd thing to ask in an economy that shrank by 25 per cent in little over a month last spring, and whose recovery lags major competitors.

However, after last week’s bumper GDP growth figures, it isn’t as wide of the mark as you might think.

In simpler times, the 4.8 per cent quarterly growth we experienced through the spring would be near-enough unprecedented.

With the economy “only” a little over 2 per cent smaller in June than it was pre-virus, it’s almost guaranteed that the full recovery from the Covid-19 hit will be considerably quicker than after the global financial crisis of 2008.

Then, GDP took five years to recover; this time it’ll be closer to two.

The economic charts from the past two years reveal what looks much more like a “V-shape” recovery than many economic commentators had dared predict.

Yet, it’s too early to pop the Champagne corks. Further strong gains in economic growth will be harder to achieve.

While the UK will reach pre-Covid levels of activity early next year, it will take much longer for the economy to get back to where it would have been, had the pandemic never happened.

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The biggest challenge will be keeping up confidence; rising optimism amidst a rapid vaccine roll-out undoubtedly helped boost consumer activity last quarter. But the Delta variant – and the resulting “pingdemic” – has tested the public’s appetite to shop and socialise.

People are slightly more reluctant to leave home, if you look at the regular Office for National Statistics (ONS) social survey, and the recent recovery in card spending and transport usage has also stopped firmly in its tracks.

Worrying headlines about NHS pressure over the winter is only likely to amplify the consumer caution that has crept back in over recent weeks.

That matters, because as the International Monetary Fund (IMF) argued last year, people’s individual decisions to stay at home have often had a greater effect on economic activity than lockdowns themselves.

There are other challenges, too, as unemployment is still likely to rise as the furlough scheme ends, despite what the Bank of England forecasts say.

Pictures of empty supermarket shelves don’t help either. That’s not just a Brexit/pingdemic problem. Global supply chain disruptions are hitting British producers and pushing up prices. Meanwhile, the Treasury is preparing to dial back economic support over the winter.

As Boris Johnson keeps telling us we’re not “out of the woods” as far as Covid is concerned, the same is perfectly true for the UK economy.

By James Smith

Source: iNews

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UK recovery still unsteady despite July job surge, finds report

The relaxation of lockdown rules in July sparked a surge of hiring among UK firms, but staff shortages caused by the pandemic and Brexit could still undermine the recovery, the professional services group BDO reported on Monday.

BDO’s latest business trends report found that the jobs market strengthened last month, as hospitality venues such as restaurants and bars were allowed to operate without Covid-related capacity limits.

But many firms reported labour shortages, partly due to the pandemic – with workers being told to self-isolate by the NHS Covid app – and Brexit, BDO said. This created a scramble for workers, pushing up wages and leaving bosses fretting about rising costs.

BDO’s employment index rose by 1.57 points, from 106.05 in June to 107.62 in July, showing the strongest pickup in hiring so far this year. Business optimism dipped back from the record high recorded in June, while BDO’s inflation index – which tracks rising prices – was close to June’s four-year high.

Pressure on global supply chains, and problems importing goods and materials due to the UK’s exit from the EU, both pushed up costs, BDO reported, along with rising wages as employers paid more to attract and retain talent.

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Some companies have recently introduced signing-on bonuses of up to £10,000 to attract job applications.

Last week, the Bank of England predicted that unemployment had peaked, with a tight labour market leaving some employers struggling to hire staff. The Bank also forecast that inflation would hit a 10-year high of 4% by the end of the year.

“The surge in employment is a timely boost and shows how quickly the relaxation of restrictions has impacted the economy,” said Kaley Crossthwaite, a partner at BDO LLP. “It now appears that one of the biggest problems faced by employers will be filling roles as both the pandemic and Brexit give rise to staff shortages.”

A separate survey from the accountancy firm Azets found that two-thirds of UK small businesses felt positive about the UK’s economic outlook over the next 12 months, with more than half of firms expecting to expand their workforces.

But the SME barometer also found a regional split, with 71% of London and south-east small firms feeling positive about the UK’s economic outlook, in comparison with 60% in Scotland and 59% in the north-east, north-west and Yorkshire and Humberside.

Many firms, especially outside London and the south-east, cited Brexit as a threat – along with the economy, Covid-19 and competition.

“After a year of deep crisis and upheaval, with the vaccination programme accelerating across Europe and lockdown restrictions beginning to ease, the prospect of an economic recovery feels within our grasp. At the same time, plenty of uncertainty remains,” said Chris Horne, the group CEO of Azets.

By Graeme Wearden

Source: The Guardian

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IMF predicts UK economy to grow fastest of all G7 nations

The UK economy is set to recover much faster than expected from the Covid crisis as a resurgence in consumer spending and the success of the vaccine rollout boosted official forecasts.

According to the International Monetary Fund’s latest World Economic Outlook report, the UK economy will expand seven per cent this year, a sharp increase from the 5.3 per cent predicted in the Fund’s previous report in April.

The seven per cent expansion is the joint highest rate of all advanced economies, tied with the US. However, the American economy suffered a 3.5 per cent contraction last year, meaning if the US reaches the IMF’s forecast, its economy will have recovered from the Covid hit.

Of all the group of G7 seven nations, the UK suffered the harshest hit from the Covid crisis, with economic output plummeting 9.8 per cent in 2020.

The IMF also expects growth next year to be slower than first thought, down 0.3 per cent to 4.8 per cent – still the second fastest among G7 nations.

The reopening of the services sector of the economy – which the UK relies heavily on – after the successful relatively earlier rollout of Covid vaccines compared to its peers has triggered a resurgence in economic activity in the UK, prompting the IMF to raise its forecasts.

Responding to the report, chancellor Rishi Sunak said: “There are positive signs that our economy is rebounding faster than initially expected, with the IMF forecasting the UK to have the joint highest growth rate in 2021 among the G7 economies.”

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“That said, we still face challenges ahead as a result of the impact of the pandemic, which is why we remain focused on protecting and creating as many jobs as possible through our Plan for Jobs.”

The enormous stimulus programmes launched by advanced economies to protect households’ income, jobs and prevent business bankruptcies is likely to push their combined debt-to-GDP ratio to 122.5 per cent by the end of this year.

The IMF expects Japan to have the slowest rate of output expansion of all advanced economies in 2021, rising 2.8 per cent, reflecting relatively longer lockdown periods in the country.

Europe’s largest economy, Germany, is forecast to have the second worst rate of growth at 3.6 per cent. Italy is third with a 4.9 per cent expansion.

China is expected to gain a greater share of the global economy.

Access to vaccines determines economic trajectory, warns IMF
The economic trajectory of each country has become more determined by their access to Covid vaccines, the IMF warned in the report.

Advanced economies have largely rolled out vaccines at a rapid rate, while a large proportion of emerging market and developing economies have struggled to secure enough vaccine supply to distribute among their populations.

These disparities in vaccine allocation has resulted in the global economic recovery “split[ting] into two blocs: those that can look forward to further normalisation of activity later this year (almost all advanced economies) and those that will still face resurgent infections and rising Covid death tolls” the IMF said.

Gita Gopinath, the IMF’s chief economist, said: “growth prospects for advanced economies this year have improved by 0.5 percentage points, but this is offset exactly by a downward revision for emerging market and developing economies driven by a significant downgrade for emerging Asia.”

The Fund called on countries that had procured excess doses – mostly rich economies – to donate vaccines to nations with low supply levels.

IMF urges central banks to keep monetary policy loose
The Fund urged central banks to maintain ultra-loose monetary policy in order to prevent a slowdown in the global economic recovery.

The Fund dismissed recent sharp price rises as purely “transitory” and said central banks should “avoid tightening until there is more clarity on underlying price dynamics.” However, it did say central banks should be “prepared to move quickly.”

“The current spikes in annual inflation in part are the result of mechanical
base effects from last year’s low commodity prices. Moreover, prices have increased
because of the likely transient supply-demand mismatches,” it said.

Latest data shows inflation in the UK is already running higher than the Bank of England’s target, up 2.5 per cent annually in June.

Criticism of central banks’ adherence to quantitative easing is intensifying, with members of a House Lords committee publishing a report last week accusing QE of widening wealth inequalities.

By Jack Barnett

Source: City AM

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UK economy growing at the fastest pace in eighty years – EY

Big Four accountancy firm, EY, has upgraded the country’s economic growth prospects, predicting the fastest rate of growth in 80 years as the UK emerges from the coronavirus pandemic.

The EY ITEM Club’s Summer Forecast predicts the UK economy to grow 7.6% this year, the fastest rate of economic growth since 1941, upgrading its forecast by 0.8 percentage points from Spring figures.

The UK economy is expected to now return to pre-pandemic level by the end of the year, three years earlier than appeared likely in forecasts made this time last year. Growth of 6.5% is now expected in 2022, an improvement from the 5% growth forecast in April. This will be followed by growth of 2.1% in 2023 and 1.6% in 2024.

The return to growth, according to EY, is being driven by consumer spending as the economy reopens, with confidence boosted by the UK’s rapid rollout of the Covid-19 vaccine. Delays to the government’s reopening of the economy were not judged to have impacted recovery, however.

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Compared to other economies, the UK is much more dependent on consumer spending on services, such as recreation and leisure activities, which meant that lockdowns had a greater economic impact here than elsewhere. Reopening these face-to-face parts of the economy means the UK should have a correspondingly faster recovery.

“Vaccines have played a key role in bringing forward the reopening of the economy and have been a key factor in the upgrades of the forecast throughout this year. We are also seeing some structural effects too: the UK’s way of measuring public sector spending means this will soon switch from being a drag on output to a positive, while the restrictions on international travel mean there should be much less of a tourism deficit than usual.

Martin Beck, the senior economic advisor to the EY ITEM Club

“While elements of the forecast remain uncertain, the UK has all the ingredients for a strong economic recovery from the pandemic. There is the possibility of a virtuous circle of positive expectations among businesses about rising consumer confidence and spending which, in turn, could boost firms’ confidence and output further. The fuel to sustain this circle – in the form of strong household and corporate balance sheets, and supportive fiscal and monetary policies – is there too.

“After almost 18 months of significant disruption, businesses have some space to plan ahead and invest in confidence. This could help businesses catch-up on the growth they’ve missed out on if they take the right steps to adjust to a return to a more familiar business environment.”

Stephen Church, EY’s North Markets Leader

The accountancy firm is also optimistic for employment figures, with unemployment predicted to peak at 5.1% in the second half of this year, according to EY’s analysis, and then beginning to fall in 2022. While above pre-pandemic levels, the rise in unemployment has been well below predictions made in 2020 at the height of the pandemic. The firm’s forecast attributes the furlough scheme and the way businesses have adapted to new trading conditions to the better than expected picture for jobs.

While EY’s forecast is optimistic for rapid growth as the consumer economy reopens in the UK, uncertainty remains over inflation and to what extent the British public will draw on savings built up during lockdown. Inflation is forecast to reach 3.5% by the end of 2021.

Martin Beck added:

While consumers have accumulated their largest stockpile of savings since the Second World War, the big question is whether they will actually start to spend these funds once restrictions on activity are lifted. The assumption is that they will, but this is not guaranteed. The picture for consumers is not entirely positive: savings are concentrated among higher-income households, while higher unemployment and inflation will weigh on real income growth. Household incomes are expected to rise 1% in real terms this year, which is well short of forecast GDP growth.

“The risks posed to the forecast by inflation can’t be overlooked either, particularly if prolonged higher-than-target inflation prompts the Bank of England to tighten monetary policy. However, while the departure of overseas workers from the UK during the pandemic might lead to some inflationary bottlenecks, there are factors, such as a stronger pound, which will help keep a lid on prices. Positively, the ingredients which were often a precursor to sustained higher inflation in the past do seem to be missing.”

Source: Marketing Stockport

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UK economy records modest May growth despite reopenings

The latest UK growth data covering May was a tad disappointing, with economic activity increasing by 0.8% on the month, a little lower than the 1.3/1.4% figure we’d been looking for. The good, albeit unsurprising, news is that consumer services activity rebounded strongly again owing to the ongoing reopening, and the likes of hospitality and recreation indices are essentially back to where they were last summer with comparable levels of restrictions. Otherwise the picture was slightly lacklustre, with the likes of retail, construction and manufacturing all recording month-on-month falls. In the case of the latter, you’d probably put this down to some of the supply chain issues being encountered globally.

Nevertheless, we still expect the UK to record approximately 5% growth through the second quarter. But the outlook for the current third quarter is becoming trickier to predict. Covid-19 cases are rising, albeit the growth rate may finally be showing some tentatively signs of slowing. And while the link with hospitalisations has weakened with the vaccines, there is growing concern about the number of people needing to self-isolate.

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Around 600,000 people were pinged by the NHS app or told to isolate by contact tracers in the week to 30th June, and that’s likely to be in the millions within days, if it isn’t already. This risks amplifying the worker shortages that we’re seeing in the consumer services sectors right now.

There’s also a growing risk that consumers begin to ‘act with their feet’ and reduce socialisation again while cases are high. And this may be one contributing factor to the recent levelling off in UK high frequency data. Mobility and spending data have come off recent highs.

We’d still expect positive third quarter growth of around 1.5%, especially given we’re not currently looking at new restrictions – and indeed the government is planning a further relaxation on 19 July. And we’d still say the outlook beyond the summer looks reasonably good, assuming no significantly vaccine-evasive variants emerge in the near-term.

We expect the size of the economy to be more-or-less back to pre-virus levels by the end of the year.

Source: Think Ing

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UK economy recovering quickly, long-term damage unclear-OBR

Britain’s economic recovery from its coronavirus lockdowns has been stronger than expected but it is too early to judge how much long-term damage has been done by the pandemic, a member of the country’s fiscal watchdog said.

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Charlie Bean, a committee member at the Office for Budget Responsibility, said it remained to be seen how many migrant workers had left Britain, how many currently furloughed workers would return to their jobs and how many companies will go bankrupt when government support is removed.

Writing by William Schomberg; editing by Michael Holden

Source: Reuters

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UK economy grew by 2.3 per cent in April as high street and hospitality reopened

UK economy grew by 2.3 per cent in April as government restrictions affecting economic activity continued to ease.

It was the fastest monthly growth of gross domestic product (GDP) since July last year and exceeded economists’ forecast of a 2.2 per cent jump.

In comparison with April 2020, monthly GDP in April 2021 is estimated to have grown by 27.6 per cent.

“Today’s GDP number confirms that the UK is witnessing a strong recovery,” said Emma Mogford, fund manager of Premier Miton.

“The release of pent up demand, as consumers return to shops and restaurants, is significant. Investment by businesses is also picking up, now that there is greater certainty over the outlook post-Covid and post-Brexit.”

Service sector shines

The service sector grew by 3.4 per cent during the month, with consumer-facing services reopening as Covid restrictions eased.

Output in the production sector fell by 1.3 per cent during April, the worst fall since January as three of the four sectors contracted.

Within production, mining output dropped sharply, by 15 per cent, because of planned temporary closures for maintenance of oil field production sites.

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Meanwhile, the construction sector contracted by two per cent following a strong March, with new work slowing down faster than repair and maintenance.

“Today’s figures show that although confidence is returning to the construction sector, this remains delicate and growth in specific work sectors is mixed,” said Clive Docwra, Managing Director of McBains.

“While overall output remains just above pre-pandemic levels, driven by an increase in repair and maintenance work, new work contracts declined which bucks recent growth trends.”

Sunak: ‘Promising sign’

April’s GDP remains 3.7 per cent below the pre-pandemic levels seen in February 2020, but is now 1.2 per cent above its initial recovery peak last October.

“Today’s figures are a promising sign that UK economy is beginning to recover,” finance minister Rishi Sunak said in a statement.

Last month, the Bank of England raised its forecast for British economic growth in 2021 to 7.25 per cent from February’s estimate of five per cent.

That would be the fastest annual growth since 1941 when Britain was recovering during World War Two.

“We’ve grown accustomed to erratic GDP figures since the pandemic, but today’s data confirms that the UK reached a turning point in April, when the re-opening of non-essential retail and easing of hospitality restrictions boosted spending,” said Jonathan Sparks, chief investment officer at HSBC.

“Consumer confidence has surged higher in recent months as the reopening continues, which bodes well for more domestically-focused companies.”

By Damian Shepherd

Source: City AM

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Economic recovery ‘will be faster than predicted’

THE UK’S economic recovery from the pandemic is likely to be faster than first anticipated, a leading international agency has suggested.

A forecast by the Organisation for Economic Co-operation and Development (OECD) published yesterday shows the vaccine rollout and the lockdown easing were having a more positive effect on the economy than previously predicted.

Experts at the OECD have anticipated that gross domestic product (GDP) will grow by 7.2 per cent this year, and 5.2% next year.

Their report stated that the growth was being driven by a “rebound of consumption, notably of services”, and that GDP is expected to return to pre-pandemic levels in early 2022.

It added: “Keeping up the pace of vaccinations and responding to emerging virus mutations are key challenges going forward.”

It comes after dire warnings from economists during the height of the pandemic, with fears that unemployment would sky-rocket and hundreds of thousands of jobs would be lost forever.

Despite the improved forecast, concerns are still growing over plans to scrap the furlough scheme in September, along with the uplift to Universal Credit benefits.

Opposition politicians, charities and some economists have warned that removing the financial support which has helped people throughout the pandemic suddenly risks creating a “cliff edge” and could see redundancies and job losses rise.

Last week, the SNP urged the Chancellor to reconsider ending the furlough scheme in four months, while yesterday the party’s work and pensions spokesman David Linden appealed to minister Therese Coffey over plans to scrap the rise in UC at the same time.

He argued that experts had said the rise of £20 per week had been a lifeline for struggling families, and risks plunging more people into poverty when it is withdrawn.

Despite upgrading its economic predictions for the UK, the OECD also warned the country could face the biggest decline in potential output growth on average among the G7 group of countries, while losses are estimated to be relatively small in Japan, Canada and the United States.

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It also warned that unemployment levels, currently at 4.9%, will peak at the end of the year.

It also said Brexit will have an impact on economic recovery, explaining: “Increased border costs following the exit from the EU Single Market will continue to weigh on foreign trade.

“Unemployment is expected to peak at the end of 2021 as the Coronavirus Job Retention Scheme is withdrawn.

“Declines in potential output growth in major Euro area members could be 0.3 percentage point per annum on average over 2019-22,”the report added.

“The United Kingdom could suffer the biggest reduction amongst G7 countries (a decline of 0.5 percentage points per annum), in part reflecting the additional adverse supply-side effects from 2021 following Brexit.”

The experts recommended that the UK Government should continue to support the economy until a recovery has begun, explaining: “Fiscal and monetary policies should stay supportive until the recovery firmly takes hold, facilitating structural change as support to existing firms and jobs is scaled down.

“Public investment should address long-term challenges, notably reducing greenhouse gas emissions and boosting digital infrastructure.

“Extending higher levels of cash support beyond current plans and continuing to boost training programmes can help affected households.”

In terms of the global outlook, the OECD has revised up its growth projections across the world’s major economies since the last full outlook in December of last year, putting global GDP growth at 5.8% this year.

Along with the more positive prediction for the UK economy, the OECD also warned that the global recovery from the coronavirus crisis was at a critical stage and much of it hinged on the vaccine availability worldwide.

Chief economist Laurence Boone said that the OECD’s latest projections could give hope to people in countries hard-hit by the pandemic, who may soon be able to return to work and begin living normally again.

He added: “But we are at a critical stage of the recovery. Vaccination production and distribution have to accelerate globally and be backed by effective public health strategies.

“Stronger international cooperation is needed to provide low-income countries with the resources – medical and financial – required to vaccinate their populations.

“Trade in healthcare products must be allowed to flow free of restrictions.”
Responding to the outlook, Chancellor Rishi Sunak said: “The strength of the UK’s growth forecast is testament to the ongoing success of our vaccine rollout and evidence that our Plan for Jobs is working.

“It is great to see some early signs that the UK is bouncing back from the pandemic, but with debt at nearly 100% of GDP, we must also ensure public finances remain on a sure footing.

“That’s why, at the Budget in March, I set out steps we will take to bring debt under control over the medium term; ensuring our future recovery is sustainable.”

By Hannah Rodger

Source: Herald Scotland

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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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