RBS sets up £1bn fund for loans to industry

Royal Bank of Scotland has pledged £1bn in new loans to help boost the manufacturing industry in the UK, as hopes of a recovery this year rise.

The part-nationalised bank said it had "ring-fenced a fund specifically for the manufacturing sector". The loans, ranging from £250,000 to £25m will be offered on "competitive fixed rates and with the option to defer repayments for up to three years".

A spokesman for the manufacturers' trade body the EEF said: "Anything that gives the manufacturing sector easier access to finance is welcome." He added that the industry had particular need to invest in new plants and technology. "Every quarter since the end of 2007, the cost of finance has increased and availability has tightened. The industry has had a pretty poor deal from the banks."

The move, the first of its kind aimed at the sector, came "in response from customers in the sector who are anticipating growing demand for their products during 2010 and beyond".

The Purchasing Managers' Index survey of UK manufacturers hit a two-year high in December, providing, said RBS, "evidence for cautious optimism in a sector which, with nearly 168,000 manufacturing companies employing more than 2.5 million people, has a significant role to play in the UK economy".

Peter Ibbetson, the chairman of business banking at NatWest and RBS, said many of its manufacturing customers had begun considering investing as they look towards a recovery. "We're beginning to see some encouraging signs for the manufacturing sector, but we can't forget the context they must be taken in, which is that this sector has been hit particularly hard by the recession and its return to full health will not happen overnight," he said.

The EEF slightly tempered the optimism yesterday, saying that manufacturers would only see a muted recovery this year. However, the body added that the sector was likely to post stronger growth in 2011 on the back of export-led growth, a weaker pound and a pick-up in world trade.

Alastair Murray, the group finance director of Dairy Crest, backed the move. "Anything that is designed to help UK manufacturers invest for growth should be welcomed. The fund should be seen as a positive initiative in this respect," he said.