Lending to Businesses Falls Again

Lending fallsThe Bank of England’s Trends in Lending report shows that lending to businesses has contracted by around £5 billion.

Latest figures from the Bank of England, which report up to February this year, show that lending from UK banks and building societies to British businesses has plummeted over the previous three months (Dec 2012-Feb 2013).

The rate of lending to small and medium-sized enterprises (SMEs) also contracted in this period. Overall, landing has seen a downward trend since 2009.

Minutes from April’s Monetary Policy Committee meeting have shown that members believe that extending the Funding for Lending Scheme (FLS) would help to boost lending.

FLS, launched in July last year, was supposed to increase lending levels by offering cheap loan rates to lenders who built up collateral promise to lend to home buyers and businesses.

The £80 billion flagship scheme has drawn criticism for the banks and building societies taking less than a quarter of the available government funds. At the same time the scheme, designed to incentivise lenders has actually seen lending levels fall.

Vince Cable said only last month that the Funding for Lending Scheme needed some "adjusting" and it is anticipated that the scheme will be "tweaked" to favour banks that increase their lending to smaller businesses.

Summary of Business Conditions

The Bank of England’s Agents’ Summary of Business Conditions, a report where the BoE’s regional offices provide economic intelligence, also reported similar findings.

Whilst the availability of credit had improved for some larger organisations, the agents reported that for the majority of small businesses this was not the case.

In addition to the lending conditions for small businesses retail sales were reported as merely "edging higher" but still showing a general upward trend.

Manufacturing output had remained flat but there was a subtle increase in manufacturing exports, with markets outside of the Eurozone showing an uptick.

Investment intentions were expected to remain subdued with little change in the employment outlook.

For full details of the latest Bank of England reports see the Trends in Lending – April 2013 (PDF) and the Agents’ Summary – April 2013 (PDF)

Related Articles

Find out more about the Funding for Lending Scheme (FLS) from its live date and launch date to details of the banks that signed up and the recent questions on whether FLS might be failing small businesses?

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