UK bank lending growth forecast to hit three-year low in 2027

Growth in UK bank lending to households and businesses is forecast to slow to a three-year low in 2027 as higher costs and weaker economic activity weigh on borrowing demand, according to the latest EY UK Bank Lending Outlook.

Overall bank lending growth is expected to fall from 3.6% in 2025 to 2.9% this year and 2.2% in 2027, with corporate borrowing expected to experience the sharpest slowdown.

EY forecasts corporate lending growth will more than halve from 5.3% in 2025 to 2.1% in 2026 as higher costs and economic uncertainty lead businesses to take a more cautious approach to investment.

However, greater spending on strategic projects, including AI and wider digital technology, is expected to support a recovery in business borrowing from next year. Corporate lending growth is forecast to increase to 2.8% in 2027 and 3.9% in 2028.

Despite the near-term slowdown, EY expects corporate lending to grow by an average of between 2% and 4% over the next five years, above the average recorded during the previous decade.

Corporate write-offs are also forecast to remain low, falling from 0.18% in 2025 to 0.17% this year, 0.16% in 2027 and 0.14% in 2028.

“While the bank lending forecast reflects the impact of global economic challenges, it is important to keep this in perspective, with growth still set to continue across all major categories.

“The UK banking sector remains resilient and well-positioned to navigate this period of slower activity and banking leaders should remain focused on the longer-term picture, while being ready to adapt quickly should conditions change.”

Mortgage lending proves more resilient

Mortgage lending is the only major lending category expected to record faster growth in 2026, rising from 3.0% last year to 3.3%, following the easing of interest rates during the second half of 2025.

However, EY expects higher unemployment, slower income growth and interest rates remaining higher for longer to weaken housing demand, with mortgage lending growth slowing to 2.2% in both 2027 and 2028.

Consumer credit is expected to experience a more pronounced slowdown. Growth in unsecured consumer lending is forecast to fall from 3.4% in 2025 to 1.9% this year and just 0.4% in 2027, before edging up to 0.7% in 2028.

EY said rising unemployment and slower income growth are likely to make households more cautious about taking on additional debt, while banks are expected to become more selective as affordability pressures increase.

Consumer credit write-offs are nevertheless forecast to remain contained, increasing from 0.82% in 2025 to 0.88% in 2026 and 2027 before returning to 0.82% in 2028.

Keane added: “Prolonged economic uncertainty means changing customer needs – households may look for greater financial flexibility, while businesses often take a more targeted approach to investment.

“As banks support customers through these near-term pressures, those who continue to invest in AI, emerging technology and broader transformation programmes to tailor their services will be best positioned to capitalise on future opportunities as the economy strengthens.”

Slower demand rather than deteriorating credit quality

Despite weaker lending growth, EY said write-off rates are expected to remain low and stable across corporate, mortgage and consumer lending, indicating that the slowdown is primarily being driven by weaker demand rather than a deterioration in credit quality.

“The moderation in lending activity is broad-based, as households and businesses become more cautious in response to economic uncertainty and higher costs. Business investment, housing activity and consumer borrowing are all anticipated to remain subdued in the near term.

“Importantly though, write-off rates are expected to remain low and stable across all categories, suggesting slower demand rather than a deterioration in credit quality.

“The UK’s banks enter this period from a position of strength, having built robust capital positions, greater resilience, and disciplined risk management. This means they are well-placed to support customers while continuing to invest for the future, so they are ready to meet demand as the economy stabilises and borrowing appetite returns.”