Bank of England

Business lending continues to fall, despite Bank of England and government attempts to improve credit conditions.

Data released by the Bank on Tuesday revealed that total net lending to UK companies fell by £0.5 billion in the quarter to February, which included a contraction of lending to SMEs.

However, the overall decline was less than in the previous quarter, when lending reduced by £3.3 billion.

Although the decline is unexpected, experts say that the figures do not necessarily reflect businesses’ ability to secure funding.

Alan Clarke, director of fixed income at Scotiabank, told The Telegraph:

“The headline business lending data made grim reading, but the situation is not black and white. While the growth of lending to businesses remained negative, this is partly explained by firms taking advantage of cheaper sources of financing.

“As blockages in the financial markets have cleared, firms have been able to source borrowing directly from the financial markets rather than through the banking system. So in this regard, lower business lending is actually a good sign because financial markets are returning to normal.”

The Bank’s Trends in Lending report echoed this view, attributing the reduction in overall net business lending to a marked reduction in the real estate sector, which saw lending contract by 8.1% in the last quarter alone.

Photo by Natalie Johnson