Could bank incentives lead to the green shoots of recovery being finally upon us as a record rise in small businesses lending brought more cheer on the economy on Monday as momentum builds to unlock credit markets?
Latest Bank of England figures has revealed a £238m increase in lending to small businesses during June 2013 – the biggest rise since the Bank began collecting the data two years ago and bucking a £1.3bn decline in business lending overall.
June’s rise failed to reverse fully a £476m fall in lending during the previous month but came after changes to the Bank’s Funding for Lending Scheme (FLS) in April which massively incentivised banks to lend to small businesses until the end of the year. The Bank defines small and medium-sized businesses as those with turnovers of less than £25m.
The brighter news on politically sensitive small business lending marks more good news for the Chancellor after the wider economy managed to double its pace of growth to 0.6 per cent between April and June. The forecasting firm IHS Global Insight said: “The rise in bank lending may also be a sign that smaller companies are starting to step up their borrowing as recently improving economic activity lifts their confidence and need for capital.”
The average cost of new loans for businesses also fell sharply – by 0.23 percentage points to 2.41 per cent, the lowest overall rate since December 2010.
A spokesman for the Federation of Small Businesses said: “This is encouraging news but there is still a way to go. Our most recent survey showed 50 per cent of our members still being refused credit although the benefits of the FLS are slowly beginning to feed through.”
Despite the boost for small businesses, mortgage approvals surprisingly dipped over the month to 57,667, nearly 2,000 short of City hopes. The FLS has had far more impact on mortgage lending so far, and the Government’s Help to Buy scheme is expected to give the market a further kick.
Source: The Independent