A few days after it was announced that the UK economy had returned to recession a report published by Ernst & Young’s ITEM Club has revealed that banks and insurers for the rest of the year will face levels of insolvencies not seen since the 1990s. It is expected that write-offs on corporate loans will increase to 1.9 per cent up from 1.6 per cent in 2011.
Neil Blake, senior economic adviser to the ITEM Club stated:
“Although 1.9% doesn’t sound big, this will be the highest annual rate of write-offs since the mid-90s, and the more loans banks have to write off the less money they will have to lend. Consumer-led sectors such as retail are likely to be hit disproportionately hard as discretionary household spending is cut back amidst difficult labour-market conditions, especially in regions hit hard by government spending cuts.”
Consequently, the report has predicted that lending to business is unlikely to recover to its 2008 peak before 2016.
Meanwhile, another study from the accountancy firm Deloitte’s consumer tracker has shown that 51 per cent of people are pessimistic about their household’s disposable income, from 49 per cent in the previous quarter.
