Loans to businesses set to rise as demand for credit increases, says Bank of England

Governor Carney is hoping for further growth in lending

Banks are finally turning on the credit taps to Britain’s businesses after a “significant” surge in loans in the final quarter of last year, the Bank of England said today.

Its latest credit conditions survey said the overall availability of loans had “increased significantly” for both small and large businesses and that lenders were anticipating a further increase early this year.

Demand for credit among small and large businesses is also expected to rise in the current quarter as an improving economy encourages more investment.

Lenders have now increased corporate loans for the fifth quarter in succession, while the share of loans to small businesses being approved by banks and building societies has also risen for the fourth quarter in a row, the report said. Default rates have also fallen sharply.

The Bank’s Governor Mark Carney will hope for a further acceleration in corporate credit after the focus of its Funding for Lending scheme was shifted away from mortgage lending to business loans late last year.

Credit availability for small firms is now close to its highest level since the Bank began probing lenders on the topic three years ago, although experts warned that the cost of loans has barely budged compared to falling credit spreads for larger companies.

Lee Hopley, chief economist at the EEF manufacturers’ organisation, said: “Steady im- provements in credit conditions are continuing and the Bank’s survey brings further signs that finance providers are making more credit available and risk appetite is increasing. However, the issue of cost is still lingering for smaller businesses.

 With a turnaround in investment on the cards for this year we will also need to see a real pick-up in net lending to businesses and fewer companies saying they have been discouraged from accessing external finance.”

The survey contrasts with the latest figures from the Bank of England showing net lending to business fell by £4.7 billion in November — the sharpest drop since April 2011 — despite a modest pick-up in small business lending. IHS Global Insight’s Howard Archer said: “Increased credit availability to corporates is yet to be reflected in the hard lending data.”