Bank of England Governor Mark Carney faced a fresh setback today as another drop in loans to businesses overshadowed the latest figures from Threadneedle Street’s flagship scheme to kick-start credit.
The Bank’s latest credit data showed lending to businesses fell £600 million in January, with loans to small and medium-sized firms down £300 million.
These were smaller falls than seen in December, but the latest decline contrasted with another surprise jump in mortgage approvals to 76,947 — well ahead of December’s 72,798 and the highest level since November 2007.
Separate figures showed participants in the Bank’s Funding for Lending Scheme grew net lending to the overall economy by £5.8 billion in the final three months of 2013, below the £6.2 billion seen in the previous quarter.
Detailed FLS figures also revealed Royal Bank of Scotland and Nationwide shrank net lending to SMEs by £2.2 billion and £1.1 billion between April and December last year, partly because of the lenders reducing exposure to property. Lloyds increased net lending £1.1 billion over the same period.
The sluggish revival in business credit is a lingering headache for Threadneedle Street despite much better news on growth and inflation, which has fallen back below the monetary policy committee’s 2 per cent target.
With lending to small businesses still in negative territory, the FLS has spurred lending to households and cut borrowing costs.
The Bank tweaked the scheme last April to encourage lending to small business and in November prevented banks from accessing it to fund household lending.
Howard Sears, founder of small business investment firm Astuta, said: "The Bank realised very late that the FLS was doing a great job of sparking a consumer credit boom but precious little to help Britain’s true wealth generators — the SMEs.
Loans to small business still lag well behind household lending. Mortgage and personal lending have surged to pre-crash levels, but the credit pipeline for small businesses is only slowly unblocking."
Since the scheme began in the summer of 2012, participants have drawn down £41.9 billion in cheap funds but only increased their net lending by £10.3 billion. This is far below the £80 billion boost envisaged when the FLS was announced in June 2012.
However, the Bank insists the scheme should be considered a success when judged against original expectations of declining bank lending.
Paul Fisher, the Bank’s executive director for markets, said: "The UK recovery has gained momentum with easier credit conditions playing an important role."