Fall in bank lending reaches fastest-ever rate

Bank of England report also reveals rise in interest rates

A new report published by the Bank of England has revealed that lending to small firms has fallen by the highest yearly percentage since records began.

The Bank’s report, Trends In Lending, found that lending to small businesses dropped 4.2% on last year’s figures, the most drastic year-on-year downturn on record.

The study also found that the average interest payable on these loans to small firms had grown to 4.66%, further increasing the credit difficulties for small business.

Conversely, larger businesses are shown by the report to have benefited from falling interest rates and easier access to credit in the same period.

Trends in Lending is the latest in a series of reports to paint a negative picture of bank lending trends in recent months.

In February, the largest banks in Britain pledged to make more credit available for small businesses as part of the Project Merlin agreement, but lending has so far fallen well short of the targets set, with banks failing to reach their small firm lending goals by £2.2bn.

The national chairman of the Federation of Small Businesses, John Walker, said that the report shows that the lending problem will not be resolved by setting targets, but through greater competition within the banking sector.

He added: “It is the UK’s 4.8million small firms – the country’s job creators – that will help pull the recovery on to firmer ground, yet they are being given a worse deal than larger businesses.”


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