Credit squeeze on UK business tightens

Bank of England report shows further fall in bank lending

Credit conditions for would-be homeowners have continued to improve in recent months, but borrowing for businesses remains constrained.

The Bank of England’s latest release on trends in lending showed that, measured annually, the amount of lending to UK businesses from banks and building societies fell in the three months to February.

The BoE said on Friday that lending to businesses fell £5bn in the three months to February, adding that the decline was “broad-based across sectors” with both small and large companies borrowing less from the banks.

However, the central bank noted that larger businesses had other sources of funding, such as capital markets, and that net bond issuance rose during the same period. The BoE reported that in February net issuance was the largest for almost four years and that the cost to larger businesses of accessing credit this way was “relatively low”.

Lee Hopley, chief economist at EEF, the manufacturers’ association, said: “The figures provide some further evidence that the midsize and larger end of the corporate sector appear to be seeing improvements in the availability and cost of finance but [there is] little sign of definitive change for SMEs.”

Separately, data from the Council of Mortgage Lenders, a trade body that represents the industry, said gross mortgage lending increased to £11.6bn in March, up 9 per cent from the February figure.

“Conditions in the housing and mortgage markets continue to show signs of improving,” said Bob Pannell, the CML’s chief economist, linking the improvements to lower bank funding costs and the Funding for Lending Scheme unveiled by the BoE and Treasury in June to spur credit creation.

The rise in mortgage lending contrasts with BoE data showing a fall in mortgage approvals in February.

Mr Pannell said he expected the Treasury’s Help to Buy scheme, announced by George Osborne, chancellor, in last month’s Budget, to boost mortgage lending further.

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