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EY figures contradict BoE data

Bank lending to firms rising for first time since crash

CityLending to businesses is on the rise and is likely to grow this year for the first time since the credit crunch according to new research.

Businesses borrowed £103.4 billion from banks in the first half of 2015, up from £88.6bn in the same period of 2014, say  economists at the influential EY Item Club.

The EY Item Club is forecasting a “marginal” increase just 0.25% this year against the last 12 months but then continuing to grow over the following years so that by 2019 it should be as much as 25% higher than in 2014.

Lending to firms peaked at £575 billion in 2008, but has been in decline ever since.

These trends, however, contradict data released by the Bank of England last week showing that lending to non-financial firms plunged by £5.5 billion in June, the sharpest fall since records began in May 2011. Those figures showed larger firms struggling more than SMEs to raise capital from banks.

Omar Ali, EY’s head of UK banking and capital markets, said: “Consumer credit finally turned the corner in 2014, and now business lending will hopefully follow suit.

“The rising demand from businesses for new loans is good news for the banks, but the June drop in net lending shows how vulnerable they are to bigger businesses, with access to alternative sources of finance such as bonds, paying off overdrafts in preparation for rising interest rates.”

However, he added: “At this rate the rise in overall business lending this year will only be marginal. Add further fines on the horizon, the introduction of a banking tax surcharge, ongoing regulatory reform and the pressure to create more competition to the mix, and you can see why banks won’t be pausing to celebrate yet.”

CBI figures published today suggest smaller firms are growing steadily, although exports are “dragging down” performance amid the continued strength of the pound. Its survey of more than 400 small and medium-sized companies showed business optimism improved in the last three months, although export orders and prices fell, with the trend expected to continue.

Anna Leach, head of economic analysis at the employers’ organisation, said: “Optimism among smaller manufacturers improved this quarter, alongside steady employment growth, rising output and new domestic orders.

“The relative strength of the pound against the euro is hitting export orders and margins. This, alongside uncertainty regarding Greece, threatens growth prospects in the eurozone.”

 

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