Do not rely on credit increases, firms told

Group Business Correspondent

Thursday 27 September 2012

BUSINESSES should not expect any increase in the supply of credit in the fourth quarter, while small firms may even find that loans get more expensive, research by the Bank of England shows.

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MARK WILLIAMSON

However, life should get easier for homebuyers amid signs the mortgage market is loosening up.

The findings of the latest Credit Conditions Survey by the bank indicate the launch of the official Funding for Lending Scheme in August will not provide the short-term boost to lending to firms many may have hoped for.

"Looking ahead to Q4, lenders continued to expect no change in credit availability to the corporate sector overall, although wholesale funding conditions were expected to have a positive impact on credit availability," the survey notes.It adds: "Spreads were expected to widen slightly for small businesses over the next three months, but to remain unchanged for medium and large firms."Lenders said demand for credit had fallen among small and large businesses in the third quarter, but not in medium-sized firms. The findings may reinforce concern that businesses could face a long wait for funding conditions to improve in spite of repeated official efforts to encourage banks to increase lending.On Tuesday, the British Bankers Association said high street banks cut lending to non-financial companies by £1.5 billion in August and by an average £1.6bn in the preceding six months.Howard Archer, chief economist at IHS Global Insight noted the Funding for Lending Scheme (FLS) was in its infancy, but added: "The immediate concern is that banks will remain very cautious about lending to smaller businesses in the current difficult and uncertain environment. "This supports the case for getting the planned state-backed business bank to fund small and medium-sized businesses up and running as soon as possible."The survey findings suggest lenders expect to draw on the cheap money they can access under the FLS scheme to increase mortgage lending instead. "Availability of secured credit was expected to increase significantly further over the next three months, to borrowers spread across Loan To Value ratios," it said."The FLS was widely cited as contributing towards the expected improvement in secured credit availability. Market share objectives were also expected to contribute positively towards credit availability in Q4."Mr Archer said the proposed increase in secured lending offers hope that housing market activity will pick up, depending on confidence levels among buyers. This could encourage an increase in consumer spending.The Bank of England found lenders expected to increase unsecured credit "slightly" over the next three months.

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Do not rely on credit increases, firms told

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