Is Merlin working real magic? Or is it just a cheap conjuring trick? The banks say that the lending deal they agreed with the Treasury back in February is successfully delivering new credit to Britain's hard-pressed small businesses. But the Bank of England argues that small firms are still experiencing a credit crunch as banks shrink their balance sheets.
The Bank's latest Trends in Lending survey said that the stock of lending from banks to small businesses fell in the three months to August, when Merlin figures suggested lending to the sector was going up. So who is right? It would be strange for an impartial observer to believe the private banks. Even the Chancellor, George Osborne, has effectively admitted that Merlin is not working.
The Treasury is working on plans for "credit easing", which would attempt to channel new lending to small firms by creating a market for their securitised loans. If Merlin was delivering, there would be no need for this. What's really baffling, though, is that it would be much simpler for the Chancellor simply to force the taxpayer-controlled Royal Bank of Scotland and Lloyds – which are bankers to some 60 per cent of small businesses – to increase their lending directly to deserving small businesses.
Yet for some reason he refuses to pull this lever. Merlin might not be magic, but the banks have certainly succeeded in casting a strange spell over Mr Osborne.