A fresh credit blow for Britain’s small businesses today underlined the stiff task ahead for new Bank of England Governor Mark Carney on his first day in the job.
The Bank’s latest figures showed loans and overdrafts to small businesses shrinking by £452 million in May as Carney gets down to work in Threadneedle Street. The latest disappointment means lending to smaller firms — defined by a turnover of less than £25 million — has fallen in all but two months since the Bank began collecting the figures two years ago.
It also comes despite changes to the Funding for Lending initiative in April, designed to incentivise banks to lend to smaller companies. For the rest of this year they can draw down £10 in cheap funding under the scheme for every £1 in net lending advanced to SMEs, and £5 for every £1 in 2014.
Smaller businesses also repaid £3.7 billion in loans in May, higher than the average, the figures showed.
“At best, it appears that FLS may have stopped lending to businesses from falling more than it has,” IHS Global Insight’s Howard Archer said. The latest FLS figures showed a £300 million slide in lending in the quarter to March, although some banks such as Royal Bank of Scotland are dragging the figures down as they pull back from areas like commercial property.
Lending to business overall declined by a further £1.3 billion — although this was a smaller fall than the average of the past six months, the Bank added. Funding for Lending has had far more impact on the mortgage market, where home loans jumped 7% in April to 58,242, the most since December 2009. The average cost of new mortgage loans meanwhile dropped to a new record low of 3.27%.
There was better news for Carney from manufacturers as UK firms managed their third successive month of expansion, lifting prospects for the wider economy in the current quarter. The Chartered Institute of Purchasing & Supply’s latest healthcheck showed the fastest pace of growth for more than two years as “sector begins to work up a head of steam,” according to chief executive David Noble.
The new Governor chairs his first meeting of the Bank’s Monetary Policy Committee on Wednesday, when rate-setters are expected to make no changes to their £375 billion rates programme.
Barclays chief economist Simon Hayes said: “Although activity is not rising especially rapidly, momentum appears sufficiently positive to suggest that a recovery is indeed in train, and the case for further stimulus is diminishing.”