Down with property – lending to the real economy is coming back

Tim Wallace
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The crunch in business lending could be over at last, Bank of England figures show today, with non-real estate firms leading the way.

British firms borrowed an extra £100m in February – small in the grand scheme of things, but a positive result.

Net lending is down 2.1 per cent on the year and 0.5 per cent on the quarter, but the small rise on the month could signal the start of a turnaround.

More significant still is the increase in lending when real estate firms are stripped out.

Property prices might be booming, particularly in London, but the firms in the sector are not feeling it. Lending to those businesses dived 8.1 per cent in February, compared with February 2013.

By contrast non-real estate firms are seeing something of a resurgence in the supply of credit. Their borrowing increased 0.3 per cent on the year.

That might sound like a tiny change, but it represents the first increase since December 2009.

Source: Bank of England

Economists are optimistic it is the start of a full-blown recovery for businesses as the economic recovery takes hold.

“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 from 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."