Surveys suggest a healthy level of activity in Q1 but are already showing signs of deterioration from Q2 onwards
Business sentiment indicators were fairly positive at the start of 2026. However, they now point to a downturn, with a resurgence of supply constraints and an expected deterioration in demand (from both businesses and households). The manufacturing output index is contracting for the first time in six months.?
Before the outbreak of the war in Iran, lending remained buoyant
Year-to-date new mortgage lending had stabilised above pre-pandemic levels, driven by falling interest rates. Net consumer-lending flows are growing at a faster pace than their historical average. Net bank lending to businesses was also quite strong, concentrated mainly on large firms. In the near term, the inflationary climate and pressure on bond yields are likely to result in tighter financial conditions and rising interest rates, which could weigh on lending growth.
