Business Lending Falls At Record Pace

Fri, 19 Mar 2010

Bank and building society lending to UK businesses in January fell at the sharpest pace for over a decade, according to the latest quarterly lending survey by the Bank of England.

The Bank’s data revealed that net lending to British firms during the month dropped by £6.5 billion, or 9.3 per cent, from the same month the previous year – marking the biggest decline since records began in 1999. The huge fall follows a £3.4 billion drop in business loans December 2009.

According to the survey, one of the reasons for the decline in finance is weakened demand from businesses who are looking to reduce their level of debt .

The Bank said: "The stock of lending to businesses has fallen in recent months. The major UK lenders reported that their net lending flows remained subdued in February, though were less weak than in January."

However, it added that the availability of credit is getting better, albeit more for larger firms than smaller ones, where availability is "improving but still fragile".

Commenting on the lending figures, Howard Archer, economist at IHS Global Insight, said: "It is evident that ongoing very weak bank lending to companies is being influenced significantly by low demand for credit in addition to restricted supply."

"Nevertheless, the survey reinforces concern that ongoing tight credit conditions remain a serious obstacle to significant, sustainable recovery. Lack of access to credit for smaller businesses remains a particular problem."
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