Lending falls across main sectors in fresh blow

Published on Thursday 19 November 2009 21:18

LENDING to businesses fell across all the main sectors of the economy in the third quarter of the year, according to new figures from the Bank of England which support expectations that recovery will be slow.

Although larger companies are getting better deals on credit, business lending fell by 4.6 billion in September and lenders reported demand for loans was likely to be "subdued" for some time.

September's fall in corporate borrowing followed negative lending flows in the first and second quarters, and the 12-month rate fell to minus 6 per cent, the Bank said.

"While some business contacts of the Bank's agents, particularly from larger firms outside the property sectors, reported that credit availability had eased, many others continued to report concerns over access to finance," the Bank said.

"The major lenders reported that an increase in competitive pressures had led to some narrowing of spreads on lending to larger businesses."

Net lending was down 0.7 per cent in the first quarter, 5.1 per cent in the second quarter, 15.6 per cent in July and 1.1 per cent in August.

Howard Archer of IHS Global Insight said: "The report will maintain the concerns of the Bank's monetary policy committee that muted bank lending to businesses remains a significant threat to the strength and sustainability of any recovery."

However, the biggest monthly growth in the money supply since January gave hope that the Bank's 200bn boost to the economy is starting to take effect. The figures showed "broad money" – bank and building society deposits and cash – growing by 1.8 per cent in October, the best since before the Bank began its quantitative easing (QE) scheme in March.

The Bank, which voted to expand its QE purchases by 25bn earlier in the month, will publish more detailed data on money growth next week.