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UK business lending falls by £4.8bn
Lending to UK businesses plummeted by almost £5bn between December and February, data showed on Friday, highlighting a growing disconnection between the impact of the Government's £80bn flagship lending scheme on individuals and corporates.

The Bank's April trends in lending survey showed that net lending to businesses fell by £4.8bn over the quarter, with lending down by £2.8bn in February alone.

Despite banks reporting that borrowing costs for small businesses had fallen for the first time since the Bank began collecting data in 2009, demand from small businesses decreased "significantly", it said. Firms across the board chose to "reduce debts or build cash reserves" rather than borrow.

"Within the corporate sector, demand for credit from small businesses decreased significantly, reduced slightly for medium-sized companies, and was broadly unchanged for large companies," the Bank said.

"Looking forward, lenders in the Credit Conditions Survey expected credit availability for small and medium-sized firms to be little changed in the coming quarter, although availability for large companies was expected to increase further."

By contrast, mortgage lending to individuals rose 0.7pc in the three months to February when compared with the same quarter last year, highlighting that borrowers had reaped the benefits of improved conditions supported by the Government's Funding for Lending Scheme, launched last August.

The Bank's survey results came as the Council of Mortgage Lenders (CML) reported a 9pc monthly rise in March in gross mortgage lending to £11.6bn. However, on an annual basis, lending fell by 8pc to £12.6bn.

The CML highlighted that the annual comparison was distorted by the fact that the first-time buyer stamp duty holiday expired last March.

A separate Bank of England survey this week showed that Britain's mortgage market showed signs of "freeing up" last month, as mortgage rates, helped by the FLS, continued to fall, even for buyers with a small deposit.

Chris Love, director of mortgage broker Mortgage Simplicity, said: "There has been improvement at higher loan-to-values, and first time buyers have been far more active over the past year, but the FLS has still benefited lower loan-to-value borrowers more than anyone else."

Analysts said the data from the Bank of England added to evidence that the FLS had so far failed to lift business lending in a significant way.

"The survey adds to the pressure on the Bank of England and the government to come up with further measures aimed at boosting bank lending to businesses, with the focus particularly on easing credit conditions for smaller companies," said Howard Archer at IHS Global Insight.

"This looks highly likely to happen and a strong possibility is that the FLS will be adjusted to specifically favour banks that increase their lending to smaller companies."

Rate-setters at the Bank of England floated the idea of extending the FLS at its latest Monetary Policy Committee (MPC) meeting.

April's minutes showed that the MPC “saw merit in possible extensions to the Funding for Lending Scheme”, having noted that there had been little sign to date of any significant pick up in net lending to businesses.

"Another possibility is that the planned business bank could be quickly introduced with more government funding than the £1 billion currently planned," said Mr Archer.
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