The UK's financial services sector is bracing for a slowdown as choppy economic conditions apply the brakes to mortgage and business lending, new research has found.
The stock of mortgage lending is expected to ease back to £1,184 billion next year, down from £1,192 billion in 2017, according to influential think tank EY Item Club.
Mortgage demand will be impacted by the inflationary squeeze on household finances, but stocks will pick up to £1,196 billion and £1,226 billion in 2019 and 2020 respectively, the organisation said.
Business lending is also expected to suffer, falling from £425 billion this year to £424 billion in 2018, before returning to growth in 2019 at £427 billion and stepping up again to £435 billion by the end of the decade.
However, Omar Ali, EY's UK financial services managing partner, said the growth swing for both areas would depend on Britain striking a transitional deal during its divorce talks with the European Union.
He said: "Even modelling for a Brexit transitional deal, the outlook for 2018 remains tough for financial services as the impact of higher inflation is felt by households up and down the country.
"Business lending, mortgage lending and general insurance look set to be the hardest hit.
"Despite warnings from the Bank of England and some high-street lenders, the only type of lending that is expected to grow in 2018 is consumer credit."
Households have seen their spending power come under sustained pressure from lacklustre wage growth and higher inflation, leading to an expansion of credit and a decline in savings.
The cost of living had reached a near four-year high of 2.9% in May, before unexpectedly falling to 2.6% in June.
Alongside the Bank, EY Item Club expects inflation to peak at 3% this year. Such a move would only increase the appetite for consumer credit, according to the think tank.
It expects the stock of consumer loans to grow from £204 billion in 2017 to £206 billion in 2018, and reach £212 billion and £218 billion in 2019 and 2020.
In a contrast of fortunes, the rise in inflation would drag on the insurance industry as the demand of financial products slows as households pull back on buying big ticket items, such as cars and white goods.
Mr Ali said: "Falling real disposable incomes and policy headwinds will make 2018 a tough year for general insurers and there's also a risk of consumer credit growing out of pace with affordability as people try to compensate for the impact of inflation."
On assets under management, the report said the amount would rise "modestly" to £1.3 trillion by 2020 after reaching a six-year high of £1.1 trillion last year, with equities faring better than bonds.