Bank of England data shows a slowdown in lending to UK businesses

The annual rate of growth in the stock of lending to UK businesses was negative in the three months to August, research finds.

The stock of lending is defined as the total outstanding amount of debt that businesses owe to banks, with a growth in the stock of lending a symptom of the banking sector lending more.

Official data from the Bank of England covering lending by all UK-resident banks and building societies indicates that the stock of lending to businesses fell by more than £2 billion during the period.

Net lending to small and medium-sized businesses (SMEs), defined as gross lending less repayments, by all monetary financial institutions has been negative since the second quarter of 2011.

Net lending to large businesses has been negative since Q4 2011.

Christopher Shaw, CEO of alternative finance provider Platform Black says, ‘Forget all talk of next week’s Indian Summer. Bank lending to businesses is enduring a Nuclear Winter.

‘Falling levels of lending are turning into a plunge. In August, they dropped even faster than the average monthly rate in 2010.’

Shaw adds that, despite the Bank of England’s quantitative easing efforts and the hopes pinned on the Funding for Lending scheme, little of the newly-created money is getting through to the real economy.

‘There’s clearly a serious disconnect between the Bank’s money presses and Britain’s 4.5 million SMEs, which together form the backbone of the economy. Yet they are suffering more than most from the lack of availability of credit.

‘The reason is that the high street banks have become obsessively cautious, and the shutters that came down on their business lending arms in the wake of the credit crunch still have not been lifted.’

Shaw continues that ever-stricter lending criteria mean that even strong businesses are often being sidelined by banks which cannot, or will not, provide access to credit. ‘Despite the banks’ claims that they are open for business and willing to lend, the gulf between rhetoric and reality is gaping ever wider,’ he says.

Matthew Fell, director for competitive markets at the Confederation of British Industry says, ‘With Funding for Lending helping to improve conditions in the wholesale funding markets, we now need to see a similar push on lending to SMEs which, coupled with the FSA’s changes to capital and liquidity, should help businesses access the finance they need.’

Ben Lobel

Delphine Hintz

Ben Lobel was the editor of SmallBusiness.co.uk from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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