BANK lending to small and medium-sized firms in the UK fell sharply in July, on a net basis which takes into account repayments, official figures have shown.

Figures published by the Bank of England yesterday showed lending by monetary financial institutions to small and medium-sized enterprises, outwith the financial sector, tumbled by a net £443 million in July. This fall more than offset a net increase of £230m in June, which had been the first rise since February and the largest since June 2013.

Lending to SMEs, defined as having turnover of less than £25m on the main business account, has fallen in four of the last five months.

The Bank of England figures showed lending to non-financial businesses of all sizes rose by a net £1.17 billion in July. It had tumbled by a net £3.91bn in June.

Lending to large businesses rose by a net £1.61bn in July. It had fallen by a net £4.14bn in June.

Colin Borland, head of external affairs for the Federation of Small Businesses in Scotland, last week cited strong demand for financing from his membership, with firms looking to invest and recruit to take advantage of economic recovery. He believed the availability and cost of bank loans for small businesses had improved, from a low base.

Howard Archer, chief UK economist at consultancy IHS Global Insight, said, while the net £1.2bn rise in lending to non-financial businesses in July looked encouraging, it should be noted that the data had been erratic. And he flagged the fall in lending to SMEs.

Mr Archer said it was vitally important for sustained, balanced UK growth that companies of all sizes which were in decent shape and wanted to borrow, to lift investment, explore new markets or generally support their operations, could do so at non-punishing interest rates.