High energy costs set to dampen bank lending

By the Editorial Team · Thursday, October 1, 2026

UK bank lending to households and businesses is expected to slow to its lowest rate in three years by 2027, with overall growth declining from 3.6% in 2025 to 2.2% as economic pressures and cautious borrowing reduce demand. Despite slower growth, mortgage lending remains relatively steady and corporate borrowing is projected to recover after a sharp drop, reflecting ongoing resilience and risk management in the banking sector.

Growth in UK bank lending to households and businesses is projected to slow to its lowest point in three years in 2027, amid economic pressures and increased caution among borrowers and lenders, according to a recent forecast. The EY UK Bank Lending Outlook anticipates a decline in overall lending growth from 3.6 percent in 2025 to 2.9 percent this year, dropping further to 2.2 percent in 2027 before slightly recovering to 2.4 percent in 2028.

The outlook cites rising energy costs and subdued economic activity related to geopolitical tensions in the Middle East as contributing factors dampening demand for borrowing. While mortgage lending is expected to remain relatively resilient, with growth edging up marginally to 3.3 percent in 2026 from 3.0 percent in 2025, the forecast suggests this expansion will slow to 2.2 percent in both 2027 and 2028. This moderation is attributed to rising unemployment, slower income growth, and interest rates remaining higher for an extended period.

Mortgage write-off rates, which have increased steadily since 2022 as households transition from lower-rate fixed deals to higher monthly repayments, are expected to rise only slightly, from 0.008 percent in 2025 to 0.011 percent in 2027, before easing marginally in 2028. Despite this trend, write-off levels are projected to stay low compared to historical standards.

Consumer credit is anticipated to face a more marked decline, with growth forecast to fall from 3.4 percent in 2025 to 1.9 percent this year, plunging further to 0.4 percent in 2027 before increasing marginally to 0.7 percent in 2028. This drop reflects tighter affordability conditions and greater selectivity among lenders as household incomes slow and unemployment rises.

Corporate borrowing is expected to be particularly affected, with lending growth more than halving this year to an estimated 2.1 percent from 5.3 percent in 2025. The forecast attributes this decline to increased caution among firms regarding investment decisions. Nevertheless, renewed expenditure on strategic projects is projected to foster an uplift, with corporate lending growth improving to 2.8 percent in 2027 and 3.9 percent in 2028. According to the forecast, corporate borrowing has remained subdued since its peak in 2008, reflecting a long-term structural shift in lending patterns post-global financial crisis. Despite the recent slowdown, average growth rates for corporate lending over the next five years are expected to exceed those recorded during the previous decade.

Corporate write-off rates are predicted to stay low, declining from 0.18 percent in 2025 to 0.14 percent in 2028. Overall, the forecast underscores that bank lending growth will continue across all major categories, albeit at a slower pace, highlighting the banking sector’s improved capital positions, greater resilience, and disciplined risk management amid ongoing global economic challenges.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.