Cost of borrowing has risen, says survey

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The Independent Online

The availability of credit to most British companies has barely improved over the past two months, research shows, and in some cases what borrowing is on offer has become more expensive.

The EEF, the manufacturers' organisation, said that a third of companies had reported that credit is more expensive today than two months ago – for new borrowing and for existing facilities such as overdrafts – while only one in 10 has seen any improvement in how much credit is on offer.

The survey, latest instalment in research the EEF has been conducting regularly since the credit crunch, suggests that banks in Britain have so far failed to respond to criticism over their reluctance to lend more to business. It will also add to concerns that the credit many companies say they need to build on the economic recovery is not there.

Lee Hopley, the chief economist of the EEF, said: "The recession and the crisis in financial markets have worsened the costs and conditions attached to accessing finance and the credit markets for many businesses, and despite the pick-up in the economy, few companies are seeing a significant improvement in lending conditions.

"This was never likely to be a swift or easy process, but we are concerned that the rise in the cost of new borrowing may be signalling that the supply of finance is not able to keep up the upturn in manufacturing activity."

The employers' group said ministers should consider a series of proposals becauise the government consultation exercise on ensuring business has access to credit is coming to a close.

In addition to focusing on the banks themselves, with the group calling for new regulation forcing the financial services sector to be more open about the cost and availability of credit, the EEF urged the Government to consider new tax incentives for businesses and to consolidate the various schemes already available to growing companies. But Mr Hopley warned that the pressure on bank balance sheets was likely to continue, and with many institutions forced to improve capital funding rather than borrow more, that would mean the situation would get worse before it got better.

"As banks rebuild their balance sheets and take a more cautious approach to risk, given the uncertainty surrounding the recovery, we are not likely to see much movement in these indicators in the short term," he said. "The fact that government has chosen to tackle this issue as an early priority, is to be welcomed."

In all, 31 per cent of companies said the cost of credit had risen in the past two months, compared to 34 per cent and 32 per cent in the second and first quarters respectively.

Just 13 per cent of companies said the availability of credit had improved over the past two months, though this was marginally better than the 8 per cent seen in the second quarter.