Lending by high street banks to companies and consumers showed little sign of improvement in April, demonstrating that a robust recovery remains elusive.
Non-financial companies paid back a net total of £2.3bn to big banks last month, after repaying £1.3bn in March, the British Bankers’ Association reported on Wednesday. Businesses have made net repayments of debt in four of the past six months.
The level of lending to non-financial companies is regarded as a key measure of the health of the UK economy by the Bank of England, which began its unprecedented policy of quantitative easing partly in order to pump up bank reserves so lending would increase.
The BBA data do not take into account a surge in bond issuance by UK companies that may have eased funding pressures. But the decline in borrowing suggests that business investment and spending are under strain and may point to further job cuts ahead.
Alongside the fall in companies’ borrowing, the BBA data showed that new mortgage lending seems to have levelled off after rebounding sharply from low levels throughout the second half of last year.
“The subdued April data from the BBA provide little indication that credit availability has improved to any marked degree,” said Simon Hayes, economist at Barclays Capital.
While it is impossible to tell from the data whether the fall in lending to companies and individuals reflects banks’ cutting back on making loans or falling demand for borrowing, it is likely that both trends are at work.
New mortgages granted for house purchases edged up to a seasonally adjusted 27,685, and although that is a 54 per cent improvement on the record low reached in November, approvals have been hovering at a similar level since February.
Mortgage lending remains well below pre-credit crisis levels – between 1998 and 2007 high street banks on average granted 66,300 new mortgages each month. New loans for remortgaging, equity withdrawal and other purposes continued to fall.
“Housing market activity may be stabilising, but that is little to shout about. The current level of stabilisation is worryingly low and consistent with further house price falls in the coming months,” said Seema Shah of Capital Economics.
Credit card borrowing continued to rise, but total credit card activity is sharply lower than it was a year ago.
Data from the Bank of England have shown that interest rates on bank overdrafts and unsecured debt are at the highest levels in recent years.