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Renewed caution after further decline in loans

The decline has added more caution to recovery hopes. Picture: PA

The decline has added more caution to recovery hopes. Picture: PA

  • by TERRY MURDEN
 

LENDING to businesses fell again last month, the largest decline since July, and adding more caution to hopes of a strong recovery.

Figures from the British Bankers’ Association (BBA) show that net lending to non-financial companies fell by £2 billion in November following a drop of £342 million in October.

While there had been an increase of £1.5bn in September, November’s drop marked the eighth month that net lending to non-financial corporations had fallen this year.

On a brighter note, the BBA noted that lending to manufacturing companies showed the first positive annual growth in November since March 2009 and that lending to some sectors is declining more slowly.

Howard Archer, chief European and UK economist at IHS Global Insight, said: “November’s data does little to fire optimism that banks are now becoming markedly more prepared to lend to businesses given the improved economic situation and outlook.

“It also raises questions as to whether the extension to the Funding for Lending Scheme (FLS) in April to favour lending to smaller and medium-sized businesses has had much impact.”

The FLS, introduced by the Bank of England and the Treasury, will be focused entirely on businesses from next month after a large proportion of the early support was funnelled into mortgages, giving rise to fears of a house price bubble.

Archer said that, despite the dip in lending, there were signs of rising demand for credit from firms. “There was clearly low demand for credit in the early months of this year, with many companies still very wary about borrowing and investing in a prolonged difficult economic environment,” he said.

 

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