Quarterly lending to businesses tumbled by £14.7 billion, says Bank of England

06 08 2009 United Kingdom

Despite last month’s claim that the high street banks had increased their lending to small businesses in June, the Bank of England’s latest figures show that lending actually slumped by £14.7 billion in the last quarter.

In July the Chancellor expressed his concerns that small businesses were being charged too much to take out loans and that the banks had broken their promises to lend more to businesses. He said that, despite the UK's record low base rate of 0.5 per cent, the cost of loans to small firms had risen in recent months.

The British Bankers' Association (BBA) responded by claiming that lending by the high street banks to small businesses actually rose by £391 million in June. The BBA statistics director, David Dooks, said at the time that "These figures provide more evidence of the high street banks' support for small businesses.”

The Bank of England’s latest report on lending indicates that credit is still not getting through the banking system to businesses. The level of lending by banks to ‘non-financial corporations’ last quarter fell by the largest amount since the Bank of England records began twelve years ago.

The latest figures show that manufacturing, construction and services were worst hit in the quarter to June. Lending by banks to wholesale and retail businesses plummeted by £6.3bn, loans to manufacturers fell by £4.5bn, professional and consultancy firms by £2.7bn and the construction sector by £2.1bn.

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