U.K. lending to companies fell in February, underlining the struggle policy makers are facing to boost credit, figures from the Bank of England show.
Net lending dropped by 2.8 billion pounds ($4.3 billion) after a 300 million-pound decline in January, the central bank said in its Trends in Lending report today. In the three months through February, the stock of lending to both small and medium-sized enterprises and large businesses also contracted.
The BOE and the U.K. Treasury set up the Funding for Lending Scheme last year to boost credit and encourage an economic recovery. With the program having only a limited impact on business lending, the Monetary Policy Committee said this month that it “saw merit” in extending it. A survey on April 3 showed that the availability of credit for so-called SMEs was “little changed” in the first quarter.
“The stimulus from the FLS and the asset-purchase program were likely to support a gradual recovery, although there had been some signs on the month that the pace of improvement in credit conditions had eased and net lending had so far remained subdued,” the MPC said in comments published April 17.
Today’s report showed that business lending fell at a three-month annualized rate of 4.4 percent in February. That’s an acceleration from the 4 percent decline in January. Data on mortgages was more positive, with net lending rising by 900 million pounds in February. Three-month annualized growth accelerated to 0.7 percent from 0.5 percent.
Still, for large U.K. companies, credit is cheaper and more easily available than at any time in the past five years, the BOE said, citing a Deloitte LLP survey. The decline in pricing is the result of increased competition and the impact of the FLS, according to the central bank.
Demand for credit among U.K. small and large businesses may increase significantly in the second quarter, the BOE said. Appetite for loans was weak in the first quarter, particularly among smaller companies, as firms have prioritized cutting debt and building cash reserves.