A “significant” flood of new loans during the fourth quarter of 2018 shows that bank lending to UK businesses is on the rise, the Bank of England recently announced.
The BOE’s latest credit conditions survey revealed that the availability of business capital had “increased significantly” for businesses of every size and lenders across the UK are anticipating a continued rise during the first quarter of 2018.
Meanwhile, thanks to an improving economy that is encouraging investment, credit demands for large and small businesses are also expected to increase during the current quarter.
However, research suggests that business lending has been on the rise for quite some time. The last quarter marks the fifth quarter in a row that lenders have increased corporate loans, while it is the fourth successive quarter that the approval rate for small business loans by building societies and banks has increased as well, the report said. At the same time, default rates have sharply declined.
Mark Carney, Governor of the Bank of England, can only hope that corporate credit will continue its acceleration after the government’s Funding for Lending Scheme shifted its focus from mortgage lending to business lending towards the end of last year.
Since the Bank of England began questioning lenders about their corporate loan numbers three years ago, the availability of credit for small businesses is approaching its highest level, although analysts have warned that loan costs have remained stagnant while credit spreads have fallen for larger companies.
“Steady improvements 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,” said Lee Hopley, chief economist for the EEF, a manufacturers’ organisation.
“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,” Hopley continued.
Despite a modest increase in lending to small businesses, the recent survey contrasts with the BOE’s latest figures, which showed net business lending had decreased by £4.7 billion during the month of November, marking the steepest decline since April 2011.
Howard Archer of IHS Global Insight, said, “Increased credit availability to corporates is yet to be reflected in the hard lending data.”