THE UK financial services sector is set to slow down next year, with only a gradual pick-up in growth expected towards the end of the decade, even if the Government agrees a “soft” Brexit with the European Union.

The findings from the EY ITEM Club outlook for financial services show that net business lending is set to stagnate in 2018 and 2019 before climbing, slowly, to £435bn by 2020.

Its latest outlook suggests inflation is set to peak at just over three per cent in the second half of this year – the fastest rate since 2012.

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This, combined with subdued pay growth, means 2017 is set to be a year of falling real earnings. Real household disposable incomes are also forecast to decline by 0.2 per cent this year, the first drop since 2013, which is likely to dampen demand for mortgages and general insurance heading into 2018.

Higher levels of inflation could lead consumers to borrow an additional £12 billion in loans by 2020, according to forecasts, taking the total borrowed to £218bn.

However, the rate of growth will cool to three per cent from 2017 to 2020. In 2016 it hit a nine year high of eight per cent.

This demand for consumer credit will come if households attempt to compensate for the hit to real incomes by borrowing more.

ITEM Club predicts mortgage lending growth is expected to slow in 2017 before there is an upturn in 2019 and 2020.