Loan to businesses fall ahead of FLS scheme shift
The Bank of England said that net lending to non-financial companies fell by £1.1 billion in October, following a rare rise of £714 million in September.
Within October’s figure, lending to small and medium-sized enterprises (SMEs) fell by £505m and followed on from declines in September, August and July.
The latest data added to concerns that a shift in the FLS in April to favour lending to SMEs is still not having much impact.
The Bank figures also showed that lenders approved the largest number of mortgages in almost six years during October, a day after the Bank announced it was scrapping the FLS scheme for homeowners to reduce the risk of a housing bubble.
Some 67,701 mortgages worth £10.5bn were approved for house purchase in October, the highest total since February 2008 when nearly 69,000 were approved.
Howard Archer, chief UK economist at IHS Global Insight, said that, with the UK currently sustaining a decent level of economic activity, business demand for credit will pick up “appreciably”.
“It is vitally important for healthy UK growth to continue that all companies that are in decent shape and that do want to borrow – whether it be to support their operations, lift investment, explore new markets – can do so, and at a non-punishing interest rate,” he said.
Duncan Kreeger, director of short-term lender West One Loans, said : “While the economy goes from strength to strength, business lending is only getting more feeble. A sustainable recovery needs to be based on business investment.
“More focus on the plight of the business community is definitely welcome – but it needs to be met with more action.”
On Thursday, Bank governor Mark Carney warned that the economy was at risk from a property bubble driven by cheap mortgages as he took action to curb lending.
He said the focus of the FLS stimulus – which enabled lenders to borrow at rock-bottom rates in exchange for providing loans – would turn instead to helping small business borrowing, which remains muted.
Carney raised the spectre of a future property bubble where households over-stretch themselves to be able to buy homes, and said the Bank was taking measured steps now to try to avoid more drastic action in the future. He announced a series of measures to calm the mortgage market, including imposing tougher tests on customers before they are granted home loans.
The announcement came as the Bank’s financial policy committee published its latest twice-yearly Financial Stability Report on potential “vulnerabilities”, including those that might be posed by an overheating housing market.