The Bank of England’s flagship scheme to increase the flow of credit to companies has come under renewed fire after figures yesterday showed lending continued to shrink last month.
The Bank said net lending to businesses fell by £2.1 billion in December, following a £2.5bn contraction the previous month, prompting calls for the UK government to do more to prop up the ailing economy.
Gross domestic product (GDP) fell by 0.3 per cent in the final three months of 2012, leading to fears that the UK is heading for a triple-dip recession, and the British Chambers of Commerce (BCC) said yesterday’s figures show the difficult credit environment “remains a significant drag on economic growth in the UK”.
BCC director of policy Adam Marshall said net lending to business fell by £18.7bn during 2012. Average monthly lending has now been in contracting since 2009, according to the Bank of England.
In a bid to persuade banks to increase lending to households and small businesses, the Bank of England and the Treasury launched the £80bn Funding for Lending scheme (FLS) in August, offering discounted cash on condition that lenders passed them on to firms and house-buyers in the form of cheaper loans.
Marshall said: “Some of our youngest and fastest-growing firms that stand ready to pull the UK economy out of stagnation are being left out in the cold, because they can’t get access to the finance they need to expand.
“A fully-functioning Business Bank is desperately needed to plug this gap and help viable SMEs drive the recovery.”
Business Secretary Vince Cable has appointed former Bank of Scotland chief executive Sir Peter Burt to chair the group advising the UK government on the establishment of the £1bn Business Bank.
Cable has promised that the institution will “fill a vacuum in medium- to long-term credit that many viable small businesses are struggling to raise to grow and create jobs”.
Mark Hastings, director-general of the Institute for Family Business, said: “The Bank of England has tried again and again to persuade the banks to lend to UK businesses, but so far it has failed. Without money to invest in growth, the economy will remain stagnant.
“The UK government must now look at freeing up other sources of finance and start to reduce our unhealthy dependence on debt.”
However, there were signs that the FLS is helping to improve conditions in the housing market. Mortgage approvals rose to an 11-month high of 55,785 in December, while the value of loans grew 10.4 per cent to £8bn.
Howard Archer, chief UK and European economist at IHS Global Insight, said: “Mortgages appear to be becoming increasingly available, helped by the FLS.”