Businesses pay back debt as lending falls again

Lending to businesses fell again in January, new data from the Bank of England have shown.

Net monthly lending fell by £1.2bn as businesses paid back more debt and boosted bank balances rather than take on loans.

On a three-month basis lending fell 1.1 per cent in January, while on a 12-month basis it fell 3.8 per cent.

The British Bankers Association, which feeds its bank lending data into the BoE statistics, said lack of demand from companies, and not banks' reluctance to lend, was behind the fall.

“Our own monthly statistics show little change in the borrowing environment for households or businesses at the start of 2011.

“In both unsecured borrowing and company finance, the emphasis is on repayment rather than new borrowing. Small businesses’ bank deposits in December were the highest on record,” it said in a statement.

Mortgage lending to individuals also fell, as the number of mortgage approvals remained low despite a small increase to 43,000 in February from 41,000 in January and December.

The approvals were the lowest level since March 2009 and a 15 per cent fall from February 2010, Global Insight chief economist Howard Archer said.

Mortgage lending was just £4.4bn in February, the Bank data showed, while net lending after repayments was just £500m, which Archer said “reflecting not only weak lending but also the fact that many people are looking to improve their finances by reducing the equity outstanding on their houses.”

The BBA added: “The high street banks have seen more remortgaging activity of late as people look to fix costs. The banks’ mortgage lending growth continues to exceed the rest of the market.”