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EY ITEM Club
Outlook
for financial services
Summer 2016
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About this
report
The ITEM Club: Outlook for financial services
examines the implications of the ITEM
Club’s economic projections for the financial
services sector. EY is the sole sponsor
of the ITEM Club, which is the only non–
governmental economic forecasting group
to use the HM Treasury model of the UK
economy. Its forecasts are independent of
any political, economic or business bias.
In conjunction with ITEM’s Chief Economist Peter
Spencer, Oxford Economics is responsible for
producing the forecasts and analysis provided in
ITEM’s forecast reports. Oxford Economics is one
of the world’s foremost independent providers of
global economic research and consulting using
unique global economic models.
Contents
Viewpoints
04
10
The latest outlook for the UK economy post referendum
sees GDP growing more slowly at 1.9% this year, against the
previous forecast of 2.6%, partially softened by supportive
monetary and fiscal policy.
Robert Cubbage, Banking & Capital Markets Leader,
explores how falling demand will challenge banks, but strong
capitalisation and support from policymakers provide comfort.
06
12
Omar Ali, Managing Partner, UK Financial Services, shares
his view on the summer forecast and what it means for
financial services.
Whilst economic uncertainty will cause a two-paced insurance
market, Rodney Bonnard, UK Insurance Leader, says
fundamentals of the sector remain strong.
08
14
Forecast highlights for Banking & Capital Markets,
Insurance and Wealth & Asset Management.
Gillian Lofts, Wealth & Asset Management Leader, says adverse
market movements and investor uncertainty will drive a flight to
quality while creating opportunities for some.
Macroeconomic outlook
Introduction
Forecast highlights
Banking & Capital Markets
Insurance
Wealth & Asset Management
16
Appendix
18
Contacts
Macroeconomic
outlook
The UK’s vote to leave the EU has injected considerable uncertainty into the
economic forecast and a weaker outlook for the UK economy seems likely.
Until the full ramifications of Brexit become clear, consumer and business
confidence looks certain to fall, resulting in slower growth than previously
expected, though there will be some relief from the weaker pound, interest
rate cuts and the change in the government’s austerity policy.
1.9%
GDP growth forecast to slow to
1.9% this year against the previous
forecast of 2.6%, followed by just
0.4% in 2017 and recovering to
1.4% in 2018.
4 | EY ITEM Club forecast | Summer 2016
3%
Consumer credit will rise by an
average of 3% a year over the next
three years, having risen by almost
10% year-on-year in recent months.
ey.com/fsitemclub
0.3%
Household disposable incomes will
grow more slowly, rising by 0.3%
next year, compared to our previous
forecast of a 1.5% increase, reflecting a
slowdown in hiring by companies, a rise
in unemployment and higher inflation
on the back of a weaker pound.
ey.com/fsitemclub
2.4%
Business investment had been
expected to show robust growth
over the next two years but, as a
result of Brexit uncertainty, is now
forecast to fall by 2.4% this year and
3.1% in 2017 before recovering the
following year.
0%
Interest rates could fall to zero by
the end of the year as the Bank of
England steps up stimulus measures,
including more quantitative easing.
EY ITEM Club forecast | Summer 2016 | 5
Introduction
“Financial services
firms are well placed
to ride out postreferendum uncertainty.
Omar Ali
Managing Partner, UK Financial Services,
EY UK
The recent decision to leave the EU has
clouded the prospects for the economy
and for financial services, just when the
fundamentals were looking positive.
Consequently, the latest ITEM Club
Outlook for financial services presents
a less certain picture than my first
Outlook as EY’s UK FS Managing Partner
six months ago.
For financial services, much of the
uncertainty surrounds the timetable for
the UK to exit the EU, the manner in which
it will do so, and the terms that can be
agreed. Very few will be making substantial
decisions until a clearer view emerges.
For now, it’s the second order effects
of the referendum result that firms are
contending with – notably the impact on the
UK economy and consumer confidence.
Before the referendum, we predicted
economic growth would rise to 2.6% this
year and 2.3% next year. We have now cut
those figures to 1.9% in 2016 and 0.4%
in 2017. The forecast for 2018 has been
revised to 1.4% from 2.2%.
6 | EY ITEM Club forecast | Summer 2016
The revised forecast is disappointing, but
it’s not a slide into recession. Rather, it
means a slowdown in growth. Without
wishing to underplay the macroeconomic
impact of the Brexit decision, the nature
of the change is still a long way from the
type of shock suffered by financial services
during the crisis of 2008. Factors such as
the strength of the UK’s banking industry,
higher levels of capital and liquidity and
the rigorous levels of regulation that our
financial services firms have to meet, are
all good signs that the sector is well placed
to ride out this immediate period
of uncertainty.
True, earlier optimism about low inflation,
falling unemployment and rising pay has
been replaced by concerns about the
impact of prolonged low interest rates,
the implications for Non-Performing
Loans (NPLs) and falling confidence among
consumers and businesses. However, the
response to the referendum in financial
services has been calm and measured.
Already, some of the market turbulence
that greeted the referendum result has
abated, helped by the rapid appointment
of a new prime minister, and a swift but
measured response by the Bank of England.
ey.com/fsitemclub
The revised economic forecast will affect
financial services players in different ways.
2016 was previously expected to be the
first year since 2011 to see a rise in total
bank lending, but the forecast for weaker
economic growth means that demand
for credit will weaken. Mortgage lending
and consumer credit are still set to grow,
albeit slower than hoped, but business
lending is expected to shrink by 1.8% next
year and the recovery in total lending
has been pushed out to 2019. Banks also
face a squeeze on net interest margins
and depressed profits from lending due to
prolonged lower interest rates.
A combination of cooler consumer demand
and low rates will squeeze profitability in
the insurance sector, with profits estimated
to decline for the first time since 2012.
Brexit should be less pressing for life
companies, especially if equity markets
don’t weaken significantly, but the sector
will continue to grapple with long-standing
issues such as increasing longevity, and the
effect of long-term low interest rates.
ey.com/fsitemclub
Wealth and asset managers have been
some of the quickest to react to Brexit,
with many launching new products and
raising redemption fees in response to the
revised economic outlook. In the longer
term, some of the biggest changes for
this sector will stem from slower growth in
household wealth, which will impact assets
under management (AUMs), and a ‘risk-off’
approach by investors likely to favour safer
assets. This will create a more challenging
environment for the sector – AUMs are
now forecast to rise by just 1.5% per year
from 2016-2019, compared to 11.3% from
2012-2015. Inevitably this will also create
opportunities for those that are able to
take advantage of a flight to quality.
Outlook
Much focus has been put on the
potential political outcomes following
the referendum, and that’s right – the
results of the negotiations stand to
have a lasting impact on the shape of
the UK’s financial services sector and
as an industry we need to speak with
one voice to inform and shape policy.
But we shouldn’t overlook the second
order impacts. For now, the landscape
in which financial services firms are
operating has altered. Consumers and
businesses are going to think twice
before they borrow, and be careful
about what they invest in, and low
interest rates look like they are here to
stay. This economic environment isn’t
that different from what the sector has
been contending with over the past
eight years of change and challenge.
In fact, thanks to the rigour instilled in
their businesses through the crisis, the
financial services industry is probably
amongst the sectors best placed to
deal with this within the UK.
EY ITEM Club forecast | Summer 2016 | 7
An uncertain outlook for a sector
built on strong foundations
The vote to leave the EU has brought with it uncertainty, along with the prospect of a sizeable hit to confidence
and spending. The economy will grow more slowly than previously forecast, although the impact will be
partially softened by supportive monetary and fiscal policy. For all sectors, there are some longer-term
questions still to be answered such as that of ‘passporting’ rights and the ability to sell into the EU. Despite this,
the strong underlying fundamentals of the financial services sector should give reason for optimism about its
long-term prospects.
Banking & Capital Markets
A weaker economy will hit
lending of all types ...
UK banks’ total stock of
lending in 2017 falling from
The average rise per year
in consumer credit over the
next three years
Annual average growth in
mortgage lending over the
next three years, down from
3% in 2014 and 2015
Lending to
businesses to
fall by almost
2%
£4.7t
to £4.5t
1.9% this year compared to our last
forecast of 2.6%: followed by just
0.4% in 2017
Growth in life
insurance premium
income slows to
2.2% in 2017
The rise in the unemployment
rate by 2019
Wealth & Asset Management
Outlook for the sector clouds as investors’
confidence takes a knock, and market
volatility sets in ...
20-year gilt yields to
average only 1.9%
in 2017, undermining
attractiveness of
annuity products
AUMs rising from
£932b in 2015
to £990b by 2019
Rise in total AUMs to slow
1.5% per year
aided by an ageing
population with wealth
to invest
from 2016-2019
VS. 11.3% from 2012-2015
and a further
in 2018
Expected Bank Rate
by the end of the year
to support lending
1.9%
in 2017
1%
0%
5% to 7%
Insurance
Changed economic outlook sees growth gap
between life and non-life insurers widen …
3%
< 1%
1.9% GDP
growth
Property fund
AUMs
forecast to fall
Insurance
premium
income to
rise just
in 2016 and
2017 followed
by a slight
recovery
in 2019
0.8%
vs. 2.8%
last year
... but robust capital positions
and regulatory shift will
support the supply
of credit
12% vs 4%
£600b
of high-quality liquid assets
held, demonstrating the
sector’s solvency
Major banks’ aggregate Tier-1 capital ratio is
12% compared to 4% prior to the financial crisis
4x
the level
pre-2008
Boost
to the
supply
of credit
The Financial Policy Committee
cut the countercyclical capital
buffer, and further monetary
policy support is likely
... but the sector will benefit
from demand-supportive
long-term trends, and strong,
established infrastructure
Increasing life expectancy and
wealth of retirees will support
the demand for life products
Less geared
... however, a shift in sentiment
brings with it opportunities
Flight to quality
Investor uncertainty should favour defensive
funds with strong track records
10%
As will long-term impact of
auto-enrolment on saving
General insurers are less
geared to movements in the
stock market, so our expectation
of a weaker outlook for equity
prices should be less of a hindrance
for these companies
Increased
flexibility
for using pension assets in
retirement will support sector
in the long term
AUMs in bonds
will have climbed
by 10% in 2019
from 2015 level
Viewpoint
A slowing economy
brings challenges
Robert Cubbage
Banking & Capital Markets Leader,
EY UK
Falling demand will challenge banks, but their
strong capitalisation and support from
policymakers provide comfort for the sector.
Forecast highlights:
• Bank assets will decline to £5.9t in 2017, shrinking until 2019
as a weaker economy curtails demand for loans.
10 | EY ITEM Club forecast | Summer 2016
•
Mortgage lending is forecast to grow less than 1% on average per
year over the next three years compared to 3% in 2014 and 2015.
•
The stock of business loans is expected to fall to £376b by 2019,
the level seen in 2005.
•
The sector is well capitalised, holding more than £600b of
high-quality liquid assets, four times the pre-2008 footing.
ey.com/fsitemclub
Viewpoint – Banking & Capital Markets
The banking industry has navigated its way through wave after
wave of challenges in the past decade. Just as positive signs
were emerging for the sector, the vote to leave the European
Union and its impact on the economy, has blown banks
operating in the UK into uncertain new waters.
Of course, low interest rates are a double-edged sword for banks.
While they should support demand for loans, they will squeeze
banks’ net interest margins, putting a dampener on profits and
constraining revenue growth.
While there are significant downside risks to consider as the
economy slows, the sector is well anchored. Banks are in far
stronger shape than they were during the financial crisis and
much better able to withstand economic shocks.
UK: Lending by UK banks
The clouds on the horizon
Since our last financial services forecast six months ago, which
highlighted the emerging bright spots for UK banks, the horizon
has clouded somewhat. These clouds largely come from downward
pressures on demand by consumers and businesses rather than
any weakness in banks’ ability to lend. Falling consumer
confidence brought on by uncertainty following the Brexit vote,
the accompanying likelihood of weaker real income growth and
rising unemployment, will manifest itself in slower growth in
demand for big ticket items, and for buying homes.
For the household sector, we expect mortgage lending growth to
slow to 1% per year from 2017 to 2019, down from 3% in 2014
and 2015. Consumer credit will rise by just 3% a year over the next
three years, compared to a rate of nearly 10% year-on-year, seen
earlier in 2016. Meanwhile for the corporate sector, the change in
sentiment will be particularly marked in business investment, which
we expect to drop by almost 2% in 2017. All of this will serve to hold
back growth in the sector’s revenues.
A well-anchored sector
Happily, it is clear UK banks are in a far stronger position than in
2008 and much better equipped to weather any downturn.
The sector holds £600b of high-quality liquid assets, four times
the level held pre-2008, and the aggregate Tier-1 capital ratio
stands at over 12%, compared to 4% prior to the financial crisis.
That solidity ensured all UK banks passed the 2015 stress tests,
which assumed much more onerous scenarios than those we face
today. We are in a slowdown rather than a full-blown solvency crisis.
There have been concerns about the commercial real estate
market, but banks are much less exposed to this sector than in
the past and have been careful to apply more stringent credit
standards and stronger risk management than previously.
A supportive policy framework as rates fall
Policymakers have made it clear they will take swift supportive
action, as we saw with the Bank of England’s Financial Policy
Committee’s decision to cut the countercyclical capital buffer to
zero, and the government’s pledge to drop its target of a budget
surplus by 2020.
Even before June, the UK’s government and regulators had been
adopting a less hawkish stance towards the banking sector, and
the current outlook will only encourage this approach.
In the wake of the Brexit vote, the Bank of England said it was
prepared to further reduce interest rates, which we expect to be
cut to zero by the end of the year, and to step up asset purchases.
ey.com/fsitemclub
% year
25
Consumer credit
Mortgage lending
20
Lending to companies
Forecast
15
10
5
0
-5
-10
-15
2002
2004
2006
2008
2010
2012
2014
2016
2018
Source: EY ITEM Club, Haver Analytics
Outlook
As Europe’s premier banking centre, it is in the UK’s interests
that favourable Brexit terms that provide access to the
single market are negotiated. Retaining existing passporting
rights that enable banks to trade across the EU would mean
disruption will be minimal in the long term. However, banks’
compliance with MiFID II could help soften the blow of a less
desirable outcome from the talks, with regulatory equivalence
supporting access to the EU.
With margins squeezed, and Brexit negotiations yet to get
underway (let alone complete), banks must use the next two
and a half years to consider strategic changes to manage
costs. The sector now boasts a much stronger capital position
than before the financial crisis, and is getting to grips with
the regulatory agenda. This allows banks to move beyond the
fire-fighting cost reduction of the last eight years, and take full
advantage of technological developments, such as robotics
and digital, to dramatically lower costs in the long term. Banks
are also likely to use the Brexit negotiation to review their
business portfolios, reducing risk on their balance sheets or
re-examining their geographic footprints.
To find out more, visit
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EY ITEM Club forecast | Summer 2016 | 11
Rodney Bonnard
UK Insurance Leader,
EY UK
Viewpoint
Economic uncertainty
to cause a two-paced
insurance market
Non-life and life insurers will feel the impact of the
economic slowdown and Brexit vote, but supportive
fundamentals, whether demographic change or
demand for reinsurance, remain.
Forecast highlights:
• Weaker consumer demand will hit general insurers, with car
registrations in 2017 to see the first decline since 2011.
12 | EY ITEM Club forecast | Summer 2016
•
General insurance premium income is set to rise by only 0.8%
in 2017 compared to 2.8% last year.
•
Life insurance to see stronger growth, with insurance premium
income to grow 2.2% in 2017, albeit down from 3.4% in 2015.
•
Annuity demand will be depressed as the 20-year gilt yield will average
only 1.9% in 2017 compared to almost 4% over the last decade.
ey.com/fsitemclub
Viewpoint – Insurance
Slower economic growth as a result of the Brexit vote, and the
weaker consumer demand it brings, will have an impact across
the whole insurance industry. Reduced demand, slower growth
in household wealth, and continued low interest rates will
squeeze profitability. We expect profits to decline this year for
the first time since 2012, falling to £8.9b. Profits will stabilise
in 2018 before climbing back to £8.8b in 2019.
The impact of the slowdown, and the implications of leaving
the EU, will not be uniform across the sector, and we will see
a divergent picture for life and non-life companies.
Slow growth, but not no growth for non-life
With real incomes under pressure, the demand for big ticket items
such as cars will weaken, and housing transactions will stagnate.
This will slow the growth in general insurance premium income to
just 0.8% in 2017. But we do not expect revenues to shrink. Even
if consumers are less likely to make new purchases, they still need
to insure their existing motor or home. Demand will grow weakly
rather than stagnate entirely.
Moreover, unlike their peers in the life sub-sector, general insurers
are typically less geared to stock market movements, and so will
be less exposed to a weaker outlook for equities.
Longer term, the implications of Brexit are potentially far more
wide-reaching for general insurers. The current passporting
system offers a simple, cost-effective and capital-efficient way of
handling cross-border business. That goes for UK-based primary
insurers selling into the EU, and for those in the EU selling into
the UK retail market, although it does not apply to reinsurance.
Insurers with cross-border operations will be hoping for a deal
that preserves passporting, perhaps through a regulatory
equivalence mechanism similar to that in MiFID.
A ‘hard’ Brexit, in which passporting rights are lost, would prove
more onerous, but there is some way to go before next steps
are obvious and companies are focusing on “no regrets” actions
where they are time-critical.
Life goes on
Since regulatory and distribution conditions typically make
it harder to sell life and pensions products cross-border, life
companies with a European presence generally have subsidiaries
in each market and the passporting issue is much lower down the
agenda for them. More concerning is the impact of the economic
slowdown and low interest rates. In the immediate term, solvency
calculations can encounter technical problems if interest rates
drop to zero or very close to it, and many insurers will have been
relieved that the Bank of England Monetary Policy Committee has
opted to keep rates on hold for now.
In the longer term, we expect insurance premium income growth
to slow from 3.4% in 2015 to just 2.2% in 2017.
We predict 20-year yields on long-term government debt to
average 1.9% in 2017, less than half their average over the past
10 years. This will further reduce the attractiveness of annuities,
while lower equity prices and a knock to investor sentiment may
dampen demand for investment products.
ey.com/fsitemclub
Despite that, Brexit has not affected the fundamentals driving
the life sub-sector: increasing life expectancy, and the shifting
responsibility for retirement from the government or employers to
individuals. The 2015 Freedom and Choice in Pensions changes,
coupled with a growing population at or in retirement with
significant property and pensions assets, will drive demand for
flexible retirement income products and possibly equity release.
Meanwhile, auto-enrolment is boosting the number of pension
savers, and slowly driving up pension contributions. None of that
will alter fundamentally because of Brexit, but an extended period
of low growth and low interest rates will aggravate the problem of
generating growth in savings and investments.
The pensions landscape has been characterised by a constant
stream of semi-annual change for the last few years, as the
previous Chancellor set out to reform the system. With his
departure it is unclear whether the government will push forward
with his most radical proposed change: abolishing up-front tax
relief. Providers will be hoping for a period of stability to help
rebuild consumer confidence in the pensions system.
In spite of this possible slowdown in pensions tax reform, there are
still regulatory pressures for life firms ahead. The Financial Conduct
Authority’s review into treatment of long-standing customers, could
still result in disciplinary action for some firms, and will definitely
drive major change as providers scramble to comply with rules that
the FCA has made clear they should already have been following.
Outlook
The history of the industry has consistently shown that the
winners in any insurance market upheaval are the companies
who are best able to reach and engage with their target end
customers, whether directly or through intermediaries. This
remains true regardless of how Brexit turns out.
Meanwhile, with profits under pressure, the focus on cost
control will continue, and many companies may reshape
their portfolios to build scale and efficiency in key areas,
potentially leading to merger and acquisition activity. That
could mean insurers selling off non-strategic product lines,
looking at asset managers or IFAs, or foreign buyers tempted
by the weak pound driving lower valuations for UK firms.
Whatever the outcome of the Brexit negotiations, the UK’s
position as a pre-eminent insurance market with more than
300,000 employees in the sector will not change in the
near term. No other country in the EU can offer the same
foundation of expertise and talent, a depth and breadth that
leaves the sector well placed to weather an extended period
of uncertainty.
To find out more, visit
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EY ITEM Club forecast | Summer 2016 | 13
Viewpoint
Navigating a bumpy
road for investors
Gillian Lofts
UK Wealth & Asset Management Leader,
EY UK
Adverse market movements and investor uncertainty
will drive a flight to quality, and favour wealth and asset
managers that can best demonstrate value to their client.
Forecast highlights:
• Total AUM will grow 1.5% per year from 2016-2019, compared to
11.3% on average from 2012-2015.
14 | EY ITEM Club forecast | Summer 2016
•
We expect AUM to increase from £932b in 2015 to £990b by 2019.
•
A flight to safety means that by 2019, bond holdings will have grown
by 10% from their 2015 level.
•
AUM in property funds will not see any growth by 2019, following the
reputational damage real estate suffered in the post-Brexit vote.
ey.com/fsitemclub
Viewpoint – Wealth & Asset Management
Wealth & Asset Management is on course for a rockier ride
than we forecasted six months ago. The prospect of interest
rate rises and investors regaining their appetite for risk has
been replaced with a likely prolonged period of low interest
rates, volatility in financial markets, and more sluggish
growth in household wealth following the Brexit vote.
But there are opportunities for wealth and asset managers
to mitigate the bumps along the road, and demonstrate their
value to clients.
The flight to safety
Increased investor uncertainty and a deteriorating economic
outlook will take their toll on asset prices, meaning AUMs are
likely to rise by just 1.5% per year between 2016 and 2019,
compared to 7.7% last year.
Growth won’t be uniform across the sector. Investor uncertainty is
likely to favour defensive funds with strong track records, driving
a flight to quality across the fund management sector. Fund flows
into bonds are likely to outpace other asset classes, despite slower
economic growth and the prospect of more quantitative easing (QE)
suppressing yields even further. While that implies a shift away from
equities, cheaper share prices will help support demand so that
AUM in equities will recover by 2019. The turbulence already seen
in commercial real estate means property AUM will fall this year and
next, after more than doubling in the previous three years.
Demonstrating value in a low-growth world
Adverse markets bring with them business challenges as well as
allocation challenges. Focusing on clients’ lifetime needs, rather than
simply selling them products, has driven success for the industry.
But now, new technology gives customers more options at their
fingertips, testing their loyalty. Demonstrating the value a manager
provides is imperative to retention, especially as weaker market
conditions mean delivering consistently high returns will become
more problematic. This makes client reporting and communication
even more important, and digital capabilities will be central to this.
We expect downward pressure on fees among those unable to
demonstrate performance. In turn, these companies will need to
manage investment costs carefully. Reduced fees, for instance, could
be facilitated by greater incorporation of smart beta strategies or
use of Exchange-Traded Funds (ETFs) where appropriate.
Regulators and customers are also demanding more transparency.
Already this year some fund managers have stopped charging
clients for the research they use, absorbing the costs rather
than passing them on. This is part of a wider simplification of fee
structures that we expect to continue.
UK: AUMs by category
£b
1000
Bonds
Equity
Mixed
Money Market
Funds of Funds
Hedge
Property
800
Forecast
600
400
200
0
2012
2013
2014
2015
2016
2017
2018
2019
Source: Oxford Economics, Haver Analytics
Outlook
Like other parts of the financial services industry, Wealth &
Asset Management will be closely watching negotiations on
the terms of the Brexit and in particular, passporting.
This will especially affect those distributing funds abroad.
In the meantime, total AUM for UK-focused companies are
set to increase, albeit at a slower rate, aided by an ageing
population with investable assets, and increasing flexibility
in how they are permitted to use these assets in retirement.
Recent market volatility and a slowing economy present
speed bumps to growth, but the successful wealth and asset
managers will be those who avoid short-term, tactical plays
and focus on a long-term strategy. Possible outcomes of the
Brexit negotiations will also play a part in aspects of strategy
development.
To find out more, visit
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Structural sector change continues
The pressure to lower costs and improve returns has driven rapid
sector consolidation in recent years. We expect this to continue,
with fewer generalist funds on the market and more specialist ones.
Several asset managers will look to build or buy their own retail
distribution networks in the medium term, while insurers may look
to broaden their offering and fill product gaps to match the new
retirement landscape. Meanwhile, a weak pound following the EU
referendum could stimulate interest from possible US buyers.
ey.com/fsitemclub
EY ITEM Club forecast | Summer 2016 | 15
Appendix
Forecasts of the UK economy
(Annual percentage changes unless specified)
2014
2015
2016
2017
2018
2019
GDP
3.1
2.2
1.9
0.4
1.4
1.6
Consumer prices
1.5
0.1
1.5
2.5
1.6
1.7
Average earnings
1.5
2.8
2.6
3.4
3.3
3.4
Unemployment rate (%)
6.2
5.4
5.0
5.6
6.4
7.0
Government net borrowing (% of GDP)
5.5
4.4
3.4
3.2
2.6
1.9
3-month interbank rate rate (%)
0.5
0.6
0.6
0.6
0.6
0.8
Effective exchange rate
87.0
91.4
82.1
77.5
76.4
74.8
Source: EY ITEM Club
UK: Gross household financial wealth
UK: Car registrations
% year
14
000s
2900
Forecast
12
Forecast
2700
10
2500
8
6
2300
4
2100
2
0
1900
-2
1700
-4
1500
-6
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2007
2009
2011
2013
2015
Source: EY ITEM Club, Haver Analytics
Source: EY ITEM Club, Haver Analytics
UK: Major banks’ capital ratios
UK: Insurance company profits
10
Basel II
Basel III
12
2019
£b
% of risk-weighted assets
14
2017
Forecast
8
10
6
8
4
6
2
4
0
2
0
Jan 01
-2
Jan 03
Jan 05
Jan 07
Jan 09
Jan 11
Jan 13
Source: Bank of England
16 | EY ITEM Club forecast | Summer 2016
Jan 15
2006
2008
2010
2012
2014
2016
2018
Source: EY ITEM Club, Haver Analytics
ey.com/fsitemclub
Banking & Capital Markets
2014
2015
2016
2017
2018
2019
Total assets (£b)
6,433
6,229
6,095
5,910
5,891
5,927
Total loans (£b)
4,929
4,787
4,673
4,516
4,545
4,620
Consumer credit (£b)
169
179
187
191
197
205
Write-offs (% loans)
1.9
2.0
1.8
2.1
2.0
1.9
Business/corporate loans (£b)
390
387
385
378
375
376
Write-offs (% loans)
1.5
0.7
0.5
0.7
0.6
0.6
Residential mortgage loans (£b)
1,075
1,110
1,140
1,142
1,150
1,169
Write-offs (% loans)
0.05
0.04
0.04
0.04
0.03
0.03
Deposits (% year)
-0.3
-2.1
-0.2
3.5
4.2
5.0
Loans/deposits (%)
115
114
113
112
111
110
Total income (£b)
119
128
131
130
132
138
Source: EY ITEM Club, Bank of England
Insurance
2014
2015
2016
2017
2018
2019
Life gross premium (£b)
162.9
168.3
173.4
177.3
182.0
187.5
% year
3.4
3.4
3.0
2.2
2.7
3.0
Life gross claims payments (£b)
192.0
216.0
220.8
227.8
235.1
242.7
Life claims ratio (%)
118
116
114
112
111
109
Non-life gross premium (£b)
59.1
60.8
62.0
62.5
63.5
65.1
% year
-1.5
2.8
2.0
0.8
1.6
2.5
Non-life gross claims payments (£b)
34.1
34.7
35.1
34.9
34.8
35.3
Non-life claims ratio (%)
58
57
57
56
55
54
Net profit (£b)
7.6
9.2
8.9
8.3
8.4
8.8
2014
2015
2016
2017
2018
2019
Total assets under management (£b)*
865
932
935
937
955
990
% year
7.1
7.7
0.3
0.2
2.0
3.7
Bonds (£b)
147
145
155
156
157
159
Equity (£b)
448
474
455
453
463
486
Funds of Funds (£b)
93
113
117
118
121
124
Hedge (£b)
1.3
1.4
1.3
1.3
1.3
1.3
Mixed (£b)
128
133
138
140
143
148
Money Market (£b)
25
35
38
39
40
41
Property (£b)
23
31
30
29
30
30
Source: EY ITEM Club, OECD, Swiss Re
Wealth & Asset Management
Source: EY ITEM Club, Broadridge
*UCITS and non-UCITS assets
ey.com/fsitemclub
EY ITEM Club forecast | Summer 2016 | 17
Contacts
Omar Ali
Managing Partner,
Financial Services, EY UK
Robert Cubbage
Banking & Capital
Markets Leader, EY UK
E: [email protected]
T: +44 20 7951 1789
E: [email protected]
T: +44 20 7951 2319
Rodney Bonnard
Insurance Leader,
EY UK
Gillian Lofts
Wealth & Asset Management
Leader, EY UK
E: [email protected]
T: +44 20 7951 1171
E: [email protected]
T: +44 20 7951 5131
Press enquiries
Nicholas Parker
E: [email protected]
T: +44 20 7951 1341
18 | EY ITEM Club forecast | Summer 2016
Rosanna Lander
E: [email protected]
T: +44 20 7951 6430
ey.com/fsitemclub
EY ITEM Club
Summer
Forecast
UK financial
services
attractiveness
survey 2016
The world postBrexit
July 2016
01 | EY UK financial services attractiveness survey, July 2016
EY ITEM Club UK
Summer Forecast
The Summer edition of our quarterly
forecast for the UK provides a detailed
economic analysis and forecast for
economic activity for the period ahead,
with commentary on the business
implications from EY’s Chief Economist,
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UK financial services
attractiveness survey 2016
The UK FS attractiveness survey is
part of the EY Economics for Business
Programme, undertaken to find out how
attractive the UK is to FS investors.
For more information please visit
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download reports and surveys.
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