UK business lending drops, mortgages rise

The flow of lending to British firms fell at a slower pace in May and major lenders approved more mortgages in June, Bank of England (BoE) said yesterday, but analysts remained cautious about the outlook.

BoE's monthly Trends in Lending report showed net lending to businesses fell by £3.4 billion (Dh20.56bn) in May after a £6bn fall in April. That pushed the annual rate of growth down to 0.1 per cent in May from 1.1 per cent in April.

Lending panel data, which draws on information from Britain's top six banking groups, showed mortgage approvals for house purchase rose to 51,100 in June from 45,000 in May.

Gross mortgage lending picked up to £9.2bn in June from £8.6bn in May.

Policymakers have been urging major banking groups to pass on credit to the rest of the economy after the BoE slashed interest rates to a record low of 0.5 per cent and embarked on a £125bn asset-buying programme. The government has also taken unprecedented and costly steps to help banks.

"Altogether there are tentatively encouraging signs from the survey, but it's difficult to be too optimistic," said Philip Shaw, Chief Economist at Investec. A separate report from the Council of Mortgage Lenders said British gross mortgage lending fell 48 per cent year-on-year to an estimated £12.3bn in June.

Britain's economy is expected to emerge from recession soon but an increase in lending is seen as vital to a sustained recovery.

While lending to businesses remains weak, some major lenders said credit flows could improve over the next few months.

"A stabilisation in the economic outlook, as well as more plentiful and cheaper funding, was expected to help them make credit more available over the next three months," said the report.

The report noted that there had been little pick up in demand for credit from businesses except for balance sheet restructuring.

Data detailing credit lines to sectors of the economy from major lenders showed real estate firms accounted for the bulk of gross new loan facilities, with £2.7bn being advanced.

Provisional data from the BoE showed the M4 measure of broad money supply contracted 0.2 per cent on the month in June – the weakest reading since June 2005. On the year, broad money supply growth eased to 14.2 per cent in June from 16.7 per cent in May.

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