Further decline in loans Renews caution

Further decline in loans Renews cautionLending to businesses experienced a fall yet again last month, this time the largest decline since July, and adding more watchfulness to hopes of a strong recovery. British Bankers’ Association (BBA) released figures that show net lending to non-financial companies fell by £2 billion in November following a drop of £342 million in October.

Though there had been an increase of £1.5bn in September, November’s drop marked the eighth month that net lending to non-financial corporations had dropped this year.

A silver lining was revealed, as the BBA noted that lending to manufacturing companies showed the first positive annual growth in November since March 2009 and that lending to some sectors is diminishing more gradually. Chief European and UK economist at IHS Global Insight, Howard Archer, said, “November’s data does little to fire optimism that banks are now becoming markedly more prepared to lend to businesses given the improved economic situation and outlook.

He added, “It also raises questions as to whether the extension to the Funding for Lending Scheme (FLS) in April to favour lending to smaller and medium-sized businesses has had much impact.”

Archer mentioned that, in spite of the drop in lending, there were signs of growing demand for credit from firms. “There was clearly low demand for credit in the early months of this year, with many companies still very wary about borrowing and investing in a prolonged difficult economic environment.”