Report says lending to UK firms is to hit six year low

A report by the Ernst & Young Item Club has suggested that despite the Government’s efforts to encourage lending, bank lending to businesses will hit its lowest level this year since 2006.

The study says that corporate lending will fall by 4.6% to £429bn at the end of 2012, which will be the fourth consecutive annual decline.

It also predicts that positive growth is forecast to resume from 2013, but corporate loans will not recover to 2008 levels – the year of the global financial crisis – until 2016.

Commenting on the findings, Item Club Senior Economic Adviser, Carl Astorri, said:

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“The good news is that 2012 is likely to be the last year of such marked deleveraging in the UK – the bad news is that, once again, SMEs will bear the brunt of it.

“Government schemes to increase lending may help a lucky few but, as banks are encouraged by regulators to store up more capital and to look again at their forbearance policies and so-called bad-loan books, most small business are going to continue to feel the squeeze.”

Recently, the Government announced that a business bank was to be unveiled in an attempt to boost lending; however banks and businesses have conflicting opinions on the current situation.

While banks say that the demand for loans is low, many businesses state that banks are unwilling to lend.

Speaking on the Governments scheme, Astorri said:

“We expect the business bank will have to compete for projects that are commercially viable, and so we do not think the scheme will have a tangible impact on the economy.”