December 19 2013 Latest news:
Wednesday, October 9, 2013
There was mixed news on the economy today as an improvement in the outlook for bank lending to businesses was offset by disappointing manufacturing and trade data for August.
According to the Bank of England’s latest quarterly Credit Conditions Survey, lenders expect the final quarter of 2013 to see an increase in lending to businesses following the recent upturn in economic prospects.
Survey responses from banks and building societies indicate the fastest growth in credit supply to small firms since the second quarter of 2010.
The Bank of England and many analysts have raised concerns over the availability of loans for small businesses in the past few years, saying the lack of credit has been holding back Britain’s recovery from prolonged stagnation.
The bank’s latest credit survey also indicates an increase appetite among lenders for handing out lower-deposit loans, even before the Government’s new Help to Buy scheme was fired into action this week.
Lenders reported seeing a “significant” increase in the availability of mortgages to people with deposits of less than 25% in the three months to September, although their willingness to lend to people with the smallest deposits of less than 10% had been “little changed”.
They told the bank that they expect to become more willing to hand out deals to people with deposits below 10% in the next few months.
John Cridland, director-general of the CBI, said: “Business confidence appears to have reached a tipping point and is beginning to translate into greater demand from firms for finance to invest, and it’s good news that the overall availability of bank finance has increased to support this.
“It’s also encouraging to see businesses are looking more broadly to alternative sources of growth finance, as well as traditional bank loans.
“To keep up this momentum, the Government should continue to co-invest in proven alternative finance options, like private placements and invoice financing, through its business bank.”
On housing, Mr Cridland added: “The increase in mortgage approvals shows that the Government’s Help to Buy scheme is having the intended effect of rebooting the housing market, which will support the recovery.”
However, hopes for a sharp pick-up in the UK recovery were dented today as official figures showed an unexpected fall in factory output during August.
Overall industrial production fell 1.1%,its biggest monthly fall for nearly a year, according to the Office for National Statistics (ONS).
Official trade figures also dealt a blow as the deficit remained stubbornly high at £3.3billion in August, down only marginally on the £3.4bn recorded in July.
A 1.2% fall in manufacturing output was behind the disappointing industrial sector performance, which came against expectations for a 0.3% rise.
There were big falls in output from food manufacturing, pharmaceuticals and electronic goods.
But the sector is expected to have rebounded in the autumn, with the underlying trend remaining robust as the ONS said industrial output was 1.1% up in the three months to August against the previous three months.
Manufacturers’ organisation EEF said the August disappointment was a “monthly setback”.
EEF chief economist Lee Hopley said: “Manufacturing should make a positive contribution to third-quarter gross domestic product growth and other business surveys seem to align behind a continuation of this trend through the final months of the year.”
The British Chambers of Commerce (BCC) raised concerns that the trade figures revealed “inadequate” progress on rebalancing the economy.
The deficit is already bigger in the first two months of the third quarter than the whole of the second quarter.
But there were signs of improvements, as exports to countries outside the European Union rose by £0.7bn to £12.3bn in August, which helped offset a £0.4bn drop in EU trade to £12.8bn.
Howard Archer, chief UK and European economist for IHS Global Insight, is forecasting the wider economy to have grown by 0.8% in the third quarter, up only marginally on the 0.7% increase seen the previous three months.
Samual Tombs, UK economist at Capital Economics, said: “August’s weak industrial production and trade figures signal that GDP growth in the third quarter might not be quite as strong as the business surveys have indicated.
“Admittedly, these falls follow on from bigger rises across June and July, so industrial production is still on track to make a small positive contribution to GDP growth in third quarter.
“The same cannot be said for net trade, however. Although the trade deficit narrowed a touch in August, it is already bigger in the third quarter so far than it was in the whole of the second quarter.
“Accordingly, today’s figures may dampen hopes that the recovery picked up much more pace in the third quarter as well as undermine hopes that the economy is finally rebalancing.”