Lending still weak warns Bank
Credit flow is still weak and could threaten economic recovery, the Bank of England has warned.
The June Trends in Lending report showed the weakest lending levels to businesses in April since June 2000, the Bank said, as gross new loan facilities granted to corporates fell from £9 billion in April to £7.9 billion in May.
Where financing is available, it comes at a higher cost, the Bank added, and firms are forced to negotiate for shorter periods.
Over 80 per cent of firms said securing finance had become more expensive or harder to obtain over the past year.
The lack of credit could be damaging the economic recovery as around two thirds of those facing tighter credit conditions had responded by reducing investment, the Bank warned.
Howard Archer, economist for Global Insight, said: "Obviously, the still weak flows in lending is heavily influenced by low demand. However, the June Trends in Lending survey suggests that the various policy measures undertaken by both the Bank of England and the government to boost bank lending are still to feed through to have a major impact.
"This is worrying for recovery prospects and further increases belief that the Bank of England will have to further extend its quantitative easing programme after boosting it by £50 billion to £125 billion in May."
Gross mortgage lending fell further in April to its weakest since December
2000, although there are "signs of stabilisation in housing market activity," the report added.
However, there are still difficulties in the market - in particular, delays in the mortgage approvals process is leading to breakdowns in house purchase chains.
Consumer credit on unsecured loans and credit card has also tightened, with interest rates failing to fall in line with the Bank base rate, due to lenders' perceptions of an increased credit risk.
As unemployment rises, lenders expect more consumers to default on their loans or fall into arrears.
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