Partly Cloudy

Partly Cloudy

max temp: 10°C

min temp: 9°C

ESTD 1874 Search

Finance: Business lending still falling despite improving economy, Bank of England figures show

16:31 22 April 2014

Lending to businesses has continued to fall, a Bank of England survey shows.

Lending to businesses has continued to fall, a Bank of England survey shows.

(c) Stockbyte

Business lending continued to shrink in the three months to February despite the improving economy, according to a Bank of England report.

Overall lending to UK businesses contracted by £500m in the three months to February, although the pace of the decline has slowed from a £3.3bn fall recorded in the preceding three months, the bank’s latest trends in lending report has revealed.

Small business groups raised concerns about the latest findings, while banks put the negative lending figures down to firms using large cash reserves to pay down their debts.

The bank’s report said survey evidence indicates that pricing on loans to small and medium-sized businesses has remained “broadly unchanged” in recent months.

John Allan, national chairman of the Federation of Small Businesses (FSB), said this “underlines the ongoing challenges small businesses face in accessing finance to meet their growth ambitions”.

He continued: “As the economy continues to gain momentum, ensuring small firms have access to finance is critical.”

The Bank’s report quoted a recent FSB survey which found the majority of small firms continue to find that credit availability is “poor”.

The Government’s Funding for Lending Scheme, which helped to boost mortgage lending last year by giving lenders access to cheap finance, has been refocused towards helping businesses for 2014.

In its recent credit conditions survey, the Bank of England said credit availability to the corporate sector is expected to expand further in the coming three months.

That survey said that “strong competitive pressure” has already prompted lenders to narrow their profit margins when it comes to lending to larger corporates, amid growing demand from big firms which are using loans to finance mergers and acquisitions and capital investment.

Richard Woolhouse, chief economist at the British Bankers’ Association (BBA), said low interest rates have helped to create good borrowing conditions for firms seeking to grow.

He said: “As the economy picks up, businesses are building up record cash reserves and paying off more of their debt, leading to an overall decline in net lending.”

Mr Woolhouse added: “Seven out of 10 applications for business finance are approved so there’s rarely been a better time to approach your bank.”

The trends in lending report also showed that for mortgage borrowers, rates being offered on five-year fixed-rate deals are continuing to edge up slightly.

The average rate on offer for a five-year fix for someone with a 25% deposit has edged up from 3.34% in January to 3.45% in February and 3.47% in March.

For someone with a 5% deposit looking for a five-year fix, the average rate has climbed more slowly, from 5.44% in January to 5.46% in March.

Experts have suggested that both swap rates, which lenders use to price their loans, and the withdrawal of Funding for Lending for households are having an impact on the mortgage market.

Toughened rules are also set to come into place on Saturday under the Mortgage Market Review (MMR), which mean that people looking to buy a home or remortgage will face more probing questions from lenders to make sure they can afford to comfortably pay back their home loan, including as and when interest rates rise.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Five-year fixes have started to edge up, partly as a result of higher swap rates... However, there are still five-year deals pegged at around 3% for those with sizeable deposits, which is excellent value.”

He said the Government’s flagship Help to Buy scheme has also had a significant impact in widening the choice of mortgages in recent months for people with only a low deposit saved.

Mr Harris said that once the MMR rules have bedded in, “the market should continue to perform strongly for the remainder of the year”.

Search hundreds of local jobs at Jobs24


Welcome , please leave your message below.

Optional - JPG files only
Optional - MP3 files only
Optional - 3GP, AVI, MOV, MPG or WMV files

Please log in to leave a comment and share your views with other East Anglian Daily Times visitors.

We enable people to post comments with the aim of encouraging open debate.

Only people who register and sign up to our terms and conditions can post comments. These terms and conditions explain our house rules and legal guidelines.

Comments are not edited by East Anglian Daily Times staff prior to publication but may be automatically filtered.

If you have a complaint about a comment please contact us by clicking on the Report This Comment button next to the comment.

Not a member yet?

Register to create your own unique East Anglian Daily Times account for free.

Signing up is free, quick and easy and offers you the chance to add comments, personalise the site with local information picked just for you, and more.

Sign up now

John Dugmore, chief executive of Suffolk Chamber of Commerce, cuts the ribbon to open the new TravelQuest branch in Ipswich, with members of the TravelQuest team.
From left, Vicki Wood, Poppy Brown, John Dugmore, Michelle Thake, Paul Hardwick and Karen Jones.

A Suffolk travel company has expanded with the opening of a second branch.

Terry Hunt, editor of the East Anglian Daily Times, left, and Boshor Ali, chairman of the Bangladeshi Support Centre (BSC), right, with other supporters of the Suffolk BME Business Awards from Ipswich Borough Council, Suffolk Chamber of Commerce, the University of Suffolk and the BSC.	
Photo: Nigel Brown

More than 40 nominations have been received for the inaugural Suffolk BME (Black and Minority Ethnic) Business Awards.

Tim King, group fleet manager at Turners (Soham), left, takes delivery of the firm's newest truck from Eddie Hennessy, regional manager of DAF Trucks UK, representing regional dealership Chassis Cab. 
Photo: Keith Mindham Photography

Suffolk-based logistics company Turners (Soham) Ltd has reported increased annual revenues and profit, and says it is “well placed” for further success despite competitive market conditions.

Sandy Jackson - Mark Westley Photography

British Gas has been forced to backtrack after repeatedly billing a 91-year-old great-grandmother for hundreds of pounds more than she owed.

Ian Thoroughgood, associate director at Grant Thornton in Ipswich, with Jonathan Agar, chief executive of Birketts.

Business advisers firm Grant Thorton is to unveil its 15th “Suffolk Limited” report next month on how the county’s leading businesses have performed over the past year.


Show Job Lists

Most read

Topic pages


Newsletter Sign Up

Sign up to the following newsletters:

MyDate24 MyPhotos24