Business loans show signs of life at long last

Tim Wallace
Follow Tim
BANKS increased lending to businesses in February, Bank of England figures showed yesterday, in an early hint that loan levels could at last be recovering.

Business loans have been crushed by the financial crisis both because banks have cut back risky lending, and because companies were reluctant to borrow in a weak economy.

In February net lending increased by £0.1bn compared with January. However, total net lending in the three months to the end of February was down £0.5bn.

And the monthly increase remains far from reversing the hit of the last few years – net lending volumes are still down 2.1 per cent compared with February 2013.

Property firms’ borrowing dived 8.1 per cent in the year, while non-real estate businesses increased their borrowing by 0.3 per cent. The rise represents the sector’s first annual increase since December 2008.

Economists hope February’s rise in borrowing, along with the more broad economic recovery, should herald a new era for business lending.

“Hopefully, the recent slowing falls in overall lending to businesses and the marginal rise in lending in February is a sign that the trend is turning,” said Howard Archer, the chief economist at IHS Global Insight.

“With the UK sustaining a decent level of economic activity and prospects looking pretty bright, business demand for credit will likely pick up appreciably over the coming months.”

Meanwhile net mortgage lending increased another £1.7bn in February, up 1.6 per cent on the quarter and 1.1 per cent on the year.

Consumer credit flows increased even more rapidly.

The category, which includes loans like credit card borrowing and unsecured loans, increased by £0.6bn on the month.

On the quarter the net flow of borrowing increased 4.5 per cent, and on the year it has jumped by 4.8 per cent.