Mark Carney began his first day in the hot seat at the Bank of England facing distinctly mixed signals on the health of the economy.
As the Canadian-born Governor took over the reins from Sir Mervyn King yesterday, a key survey suggested that the worse may be over for Britain’s embattled manufacturing sector.
The latest Cips/Markit purchasing managers’ index showed overall activity rising at its fastest pace in more than two years last month. It marks the third consecutive month of gains from a sector that has proved a drag on growth throughout the downturn, boosting hopes that Britain’s factories are recovering.
Referring to the Bank of England’s first ever foreign Governor, David Tinsley, UK economist at investment bank BNP Paribas, described the figures as “good data for the new boy”.
Carney will also take solace in a quarterly economic snapshot from the British Chambers of Commerce (BCC) – published today – which shows the recovery gathering strength with business confidence on the rise.
However, the news is not all good. Yesterday’s credit report from Carney’s new employer highlighted a worrying fall in lending to businesses – one of the main problems facing the UK economy.
According to the BoE data, net lending to non-financial companies fell by a further £1.3 billion in May after a slump of £3bn a month earlier.
The Bank of England and the Treasury have been trying to spur credit growth to support Britain’s economic recovery via their flagship Funding for Lending scheme (FLS). It offers banks cheap credit if they maintain or increase lending to households and businesses.
While there is some evidence that demand for funding remains low as businesses pay down debt, experts rounded on the latest statistics, which also showed a sharp fall in lending to small and medium-sized firms.
Howard Sears, founder of SME consultancy Astuta, said the report would be “as welcome as a bucket of cold water” for the new Governor. He added: “Bank lending to business is in a flat spin. Rudderless and falling fast. The only grain of comfort in the Bank’s otherwise depressingly familiar lending scorecard is that the rate of fall is declining.
“The banks blame lack of demand, while many businesses complain about banks that have become so risk-averse they have all but stopped new lending to business.”
Howard Archer, chief UK economist at forecasting group IHS Global Insight, said the figures highlighted why the Bank and the Treasury had felt the need to extend FLS, with the focus on incentivising lending to SMEs. “It is too early to tell if April’s extension to the FLS has had any impact at all,” he noted.
Most key measures in today’s BCC survey are stronger than those reported in the previous quarter, though the resulting balances remain below their 2007 pre-recession levels.
Director-general John Longworth said: “If we want Britain’s economy to be great, rather than just good, pro-growth policies will need to continue for decades to come.”