A £1 billion credit squeeze on businesses by the UK’s High Street lenders in September cast fresh doubts over the effectiveness of the Bank of England’s £80 billion Funding for Lending scheme today.
The gloomy British Bankers’ Association figures deal another blow to efforts to revitalise credit in the economy, after the Bank of England’s Trends in Lending report showed a £2.2 billion slide in business loans during August.
It came as David Cameron made the latest effort to ease financing conditions with an initiative on “supply chain finance”. This would see larger companies which have ordered goods and services from smaller firms contact the banks of their suppliers to help them borrow funds against their invoices, potentially unlocking £20 billion.
But the BBA stresses that nervy companies remain reluctant to borrow, as the September fall represents the eighth slide in business lending in nine months.
Statistics director David Dooks said: “Businesses are still postponing new borrowing requirements but repaying their existing loans as they continue to deleverage. Until businesses see some bright news on the horizon in terms of trading markets, they are not going to invest and grow.”
The figures suggest a sluggish start for the Bank’s FLS scheme, which has allowed banks to draw down funds at rock-bottom prices in return for expanding their lending since the beginning of August.
The Bank will publish the results of the first three months of the initiative in early December.
The BBA said it was “early days” in judging the impact of the scheme, but IHS Global Insight’s Howard Archer said: “The ongoing drop in lending to non-financial companies in September is disappointing, even allowing for the fact that there is low demand for credit and many companies are looking to pay down debt. It is evident that companies are wary about borrowing and investing in the current difficult economic environment. The data adds to the evidence that there has been no immediate major pick up in lending to companies resulting from the FLS.”
The figures also revealed signs of lingering caution among consumers despite a £155 million rise in credit card and personal loans in September. The rise failed to make up a £275 million repayment by shoppers the previous month. Households also increased their saving by £2.3 billion.
