Lending to businesses fell again in recent months but more mortgages were approved, fanning fears of a housing bubble and raising more concerns over the shape of the recovery.
Bank of England data showed that lending to companies of all sizes fell in the three months to February on a year earlier despite calls by chancellor George Osborne for businesses to boost growth by investing more.
However, there was some let-up in the pace of the fall in lending. The BoE’s trends in lending report showed a £0.5bn drop in the three months to February after a £3.3bn annual drop in the preceding three months.
The Bank said lending was down 2.1% in February on a year earlier and that much of that weakness was down to the role played by real estate businesses, where a rise in repayments had cut net lending to the sector. Excluding the real estate sector, net lending to businesses was virtually unchanged on a year ago, the Bank added.
BBA, the banking trade association, said that, although net lending was down, a high proportion of loans were being approved.
“As the economy picks up, businesses are building up record cash reserves and paying off more of their debt, leading to an overall decline in net lending. However … new lending is picking up strongly,” said Richard Woolhouse, the BBA’s chief economist.
“Low interest rates mean that the cost of finance is at an historic low, creating good borrowing conditions for businesses seeking to grow. What’s more, seven out of 10 applications for business finance are approved so there’s rarely been a better time to approach your bank.”
