Loans plan won’t work

Marion Dakers
BORROWING by British business is set to fall again this year, casting doubt on the government’s latest efforts to boost credit for companies, according to figures out today.

Economists at the Ernst & Young Item Club expect corporate borrowing to slump 6.2 per cent, as the uncertain economic outlook wipes out any incentive to lend fostered by the coalition’s new “funding for lending” scheme.

The Item Club said banks are likely to fret about the possible market stigma attached to the plan, which will allow institutions to swap illiquid assets for government bills with the aim of boosting lending to small firms.

Lenders are also mindful of the risk of default, with corporate loan write-offs expected to hit two per cent, last reached in the mid-1990s.

But business investment is expected to rise 4.3 per cent this year – suggesting that bigger firms wishing to expand already have the funds available to do so.