SMEs borrowing more but overall bank lending falls again

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MIXED messages over bank lending continued to emerge yesterday, with figures from the Bank of England showing a drop in overall borrowing but a rise in lending to small businesses.

Net lending to non-financial companies fell by a further £1.3 billion last month, following drops of £1.1bn in May and £2.9bn in April.

Yet borrowing by small and medium-sized enterprises (SMEs) rose by £238 million in June, having fallen by £476m in May and £641m in April.

Howard Archer, chief UK economist at forecasting firm IHS Global Insight, said: “The rise in net lending to SMEs in June fuels hopes that banks are now becoming more prepared to lend to small businesses as the economic environment looks brighter.”

He said it also suggests that the Funding for Lending Scheme (FLS), launched jointly by former BoE governor Lord King and the Chancellor George Osborne, could be starting to have more of a positive impact.

But Barclays analyst Blerina Uruçi noted that FLS borrowing had fallen by £200m in June, having risen by £400m in May, “raising questions about the value of the scheme”.

Uruçi continued: “Lending to the non-household private sector remains quite subdued and has underperformed lending to the household sector. Even the introduction of the FLS last summer did little to change this gap, and the FLS was amended this spring to skew incentives significantly towards lending to businesses – and in particular SMEs – with the aim of closing this gap. Any effects from this change are not yet apparent … however.”

Data released last week by the British Bankers’ Association had shown net borrowing by non-
financial firms edged £172m higher in June following a £2.7bn net repayment in May.