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Lending to businesses remains very weak, the Bank of England admitted today.
The data from the Bank indicate that businesses are not seeing the much-vaunted green shoots of recovery and that the Bank's quantitative easing programme to refloat the economy by pumping £125 billion into the lending system is not yet working.
The Bank's monthly Trends in Lending survey reports bank lending to businesses fell to £7.9 billion in May against £9 billion in April and £12.6 billion in March.
"April official data showed the weakest flow of net lending to businesses since June 2000. The major UK lenders reported that net lending remained very weak in May," said the Bank.
The Bank further reported that much of the new lending was the refinancing of existing loans, adding: "Lenders report that demand for new credit continues to be constrained by weak investment intentions and businesses."
That indicates two trends, neither of them positive for the economy: that banks are only lending to existing customers, often putting them on new, more-expensive terms; and that businesses have no appetite to borrow to invest and instead are battening down the hatches.
Of the so-called forward start agreements of banks to refinance customers, the Bank of England report says: "The benefit to lenders is that they secure future business at an earlier date than usual, which helps them to plan their future funding needs. It also allows them to reprice the facility to current prevailing spreads, which are much higher than those on facilities agreed before the financial crisis.
"Concerns about the possible withdrawal of foreign lenders from existing lending syndicates may have added to the demand for early refinancing."
But those not forced to refinance do not like what they are being offered, the report says, with companies declining to lock into "higher costs over a long period, given uncertainty about future demand".
It continued: "Lenders have continued to report subdued demand for new loans, which they partly attribute to weak investment intentions.
"To some extent companies may have reduced their investment plans because credit has become more expensive or harder to obtain."
Economist Howard Archer of Global Insight called the latest figures "disappointing" and questioned whether quantitative easing is working.
"Obviously, the still-weak flows in lending are heavily influenced by low demand," said Archer.
"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."
Reader views (8)
Of course recovery is proving elusive, how can the economy recover when the ordinary man in the sreet has no money, no recovery is sustainable under these conditions. You should not try to fudge your way out of a recession, which is what this lot are doing - recessions are part of our economic cycle and should be worked through using financial prudence, not by printing money!.
Good times will come again, but they will take much longer now because of New Labours reckless squandering of our money.
- Mark Burton, St Ives. Cambs, 20/06/2009 14:20
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Nationalisation of banks always was a stupid idea.
- Jacqueline, Hampstead, London, 19/06/2009 18:09
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- Val Daniels, Mijas Costa, Spain, have you been to the UK lately? I don't many smiling faces other than those on the take thanks to 12 years of Nu Labour attacks on the law abiding workforce. You talk of misery in the 80's and 90's you should see the derisible state of the country now. Broken economically thanks to 12 years of Nu Labour waste, not one thing improved despite the record amounts of money thrown at the problems. You will see we are broken socially, with the much vaunted diversity responsible for tension up and down the country. You will see the ordinary working people of Britain so desparate for a voice that they vote a far right extremist party to represent them in Europe.
- M, London, 19/06/2009 16:52
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Is Val Daniels part of the real?
The current government is indefensible.The Tories swept the board in local Elections..a complete eurphoric landslide.Brown is doomed.Only deluded lefties think otherwise
- Andrew Nicholls, Ely UK, 19/06/2009 16:00
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#Rupert
And then you woke up and made your bed. DC has only achieved 39% in the polls, which means 61% wont be voting for him. Why would he be 'elected on a wave of hysteria'? Quantitive easing and bailing out the banks was nothing to do with him. Both he and George Osborne opposed the bail out and QE from the outset. They have nothing to offer except a return to the misery of the 80s and 90s.
- Val Daniels, Mijas Costa, Spain, 18/06/2009 16:06
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When some financial experts speak concerning green shoots of recovery I believe that it is not recovery which is being seen, but stability. I believe what the markets and banking sectors need now is a period of calm, in order that they may reorganise themselves free of media hype and then we may see some green shoots appearing. To some my comment may seem naive and simplistic, but that is how it seems to me, but please do not let the pensioner, whether he or she receives a final salary pension or not, suffer too much after all they are the weaker sector of the economy!
- Arthur Lincoln, Roeselare, Belgium, 18/06/2009 15:47
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So let's get this straight: they won't "lend" us our own money? Hmm.
- Neil, London, London UK, 18/06/2009 15:18
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Business is a function of confidence. The banks have had a bit of a kicking so they are afraid that if they make bad loans they may loose their jobs so they tighten credit to such an extent they may as well say we are not lending. As easy credit has dried up so asset prices have gone down therefore increasingly put people in negative equity & increasing the banks losses who respond by tightening of credit/criteria. Lack of credit decreases demand for services which in turn feeds through to higher unemployment. Added to which people in this country are fed up with discredited spending binger Gordon Brown and are worried about rising taxes, red tape & their jobs. The media don't help matters by continually focusing on the doom & gloom which only compounds matters & gets people depressed. If you don't know that your job will be there in 3 months time you certainly aren't going to rush out and buy big ticket items. Eventually though things will turn & people will dare to dream again & believe that things will get better. I suspect that sentiment will start to change when this discredited Government is finally kicked out & Dave will be elected on a wave of national hysteria like Tony was way back in 1997.
- Rupert, London, 18/06/2009 15:04
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