Bank reports decline in lending
Fri, 03 Jul 2009
Business lending fell from £12.6 billion in March to £7.9 billion in May, the Bank of England's quarterly review of lending trends has indicated.
Net lending to private non-financial corporations also fell by 5.4 billion pounds in April - the largest drop in business lending for nine years.
The latest figures suggest that the credit squeeze may be continuing for small businesses, with eight out of ten firms interviewed claiming to have experienced greater difficulty borrowing over the last year.
Worryingly for the sector, the response of two-thirds of these companies has been to cut back on investment.
Commenting on the figures, Bank of England governor Mervyn King warned that weak bank lending could affect the prospects for an economic recovery.
He added: "Banks' ability to finance a sustained recovery remains impaired by low levels of equity capital."
Last week, the Federation of Small Businesses (FSB) - which has monitored the effects of the downturn on the sector since September – offered a different view of the current economic landscape.
It claimed conditions were beginning to improve for many small firms, with 25 per cent of companies reporting difficulties attracting finance compared to 40 per cent at the end of 2008.
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