• 41% expect a pay rise, but only 12% expect it to be double digit
• 49% of UK bankers expect headcount to rise
• Business lending to be less restricted in 2014 H2

Over three quarters (80%) of UK bankers are optimistic that the UK’s economic outlook will improve in the second half of 2014 and 71% think the performance of their bank will improve. As a result, 41% expect a pay rise, 49% believe headcount will increase, and there’s a positive story for lending across all sectors, particularly for SMEs, according to EY’s European Banking Barometer (1H14).

Omar Ali, UK Head of Banking and Capital Markets at EY, says: “The UK’s economy is picking up more quickly than the Eurozone, and UK bankers anticipate an increasingly strong second half to the year.

“With many banks looking to hire suggests they have started to focus on growth and increasing revenue. Perhaps more importantly, banks are better able to support the broader economy – lending to small businesses, hiring and hopefully returning profits to their shareholders, including the UK tax payer.”

British bankers pay expectations are up for 2014
Forty-one percent of UK bankers expect a salary increase in 2014, compared to only slightly more than a quarter (28%) of their European counterparts. Of the 41% of British bankers, all expect an increase to be above the rate of average wage inflation, and 12% expect it to hit double digits.

Bankers in Spain and The Netherlands were the only nations to top the UK’s expectations around remuneration, with 50% and 43% respectively expecting pay rises. But only bankers in Spain anticipate such high double digit growth (11%).

Steven Lewis, Lead Global Banking Analyst at EY, says: “After so much negative coverage of recent pay awards, bankers in the UK are acutely aware of the sensitivity of this issue. Reputational risk is a top concern. Banks are doing all they can to restore confidence in the industry and the majority of those surveyed expect salaries to remain flat. However, banks operating in London compete in a global market for talent, and not just in investment banking. The larger institutions are experiencing pressure from Asia and the US, where we have seen double digit pay increases in the last year.”

UK banks are split over their investment banking function
Almost half (49%) of UK banks expect overall headcount to increase this year. The outlook is more conservative across Europe, where 30% expect headcount to rise but 38% expect it to fall, resulting in an overall net decrease. When it comes to investment banking, the survey shows that UK bankers are divided almost down the middle over headcount – while 27% believe headcount will increase in the second half of 2014, 23% think more people will be laid off.

Omar comments: “We have seen multiple headlines this year already announcing significant job losses in UK investment banking operations, so the fact that some players are looking to grow in London is good news for the sector. Banks are choosing to concentrate and build on their strengths and to shrink or shed the businesses where they are not already a market leader. The fight for top talent will be key to success for these strategies and certain banks are evidently preparing to compete on salary if they have to.”

Resurgence in UK lending for all businesses and sectors
The survey paints an increasingly rosy picture for lending in the UK as 2014 progresses, with British bankers anticipating demand for credit to grow as the economy recovers.

SMEs are likely to benefit the most from increasingly relaxed lending criteria, with 59% of UK bankers expecting lending to SMEs to be less restrictive. This is better than the outlook for European SMEs, where only 45% of banks in Europe think they will relax the lending criteria. Across Europe, lending conditions are expected to tighten in 2014 H2 for at least one sector, unlike the UK market where lending criteria is expected to relax across the board.

Omar comments: “The relaxation of lending restrictions is good news for the UK economy, and in particular for small businesses which have struggled to access finance over the last few years. As economic growth becomes more established many small businesses will now be looking for funding to expand.”