A drop in bank lending could prompt the UK economy to contract next year for the first time since 1991, says Vicky Redwood, UK economist at Capital Economics.

She believes it is unlikely that banks will raise all the capital they need to keep expanding their balance sheets at recent rates. As a result, they will have to rein in their lending. “If UK banks fail to raise any more capital than the £20bn ($37bn) raised so far, lending could contract by 7 per cent.”