Bank lending to UK businesses remains weak

NET lending to British businesses fell for the fourth month in a row in June while mortgage approvals slumped to their lowest level in over a year last month, figures from the Bank of England showed yesterday.

In its Trends in Lending report, the central bank showed that the net monthly flow of lending to UK firms shrank by £3.5bn in June, following a £2.2bn drop the previous month.

The Bank of England said in its report that net lending by the major UK lenders remained weak in July while the stock of lending contracted across all the main sectors of the economy in the second quarter of 2010. The Bank’s contacts also noted that credit conditions for smaller businesses remained tighter than for larger corporates but added that demand had weakened compared to the first quarter.

But the main lenders hit back yesterday, with the British Bankers’ Association (BBA) arguing that the net lending figures did not show businesses paying back debts. “Banks want to lend. As fast as we are agreeing new lending, others are paying back,” said Angela Knight, chief executive of the BBA. According to the BBA, banks are lending out about £500m of new money every month.