Availability of credit to corporate sector increased significantly in fourth quarter of 2013, according to Bank of England
Hopes of an end to the prolonged fall in business lending were boosted on Wednesday when the Bank of England announced that loans were becoming cheaper and more readily available to the UK corporate sector.
In a regular update, Threadneedle Street said there were signs that credit conditions had eased for companies towards the end of last year.
"The overall availability of credit to the corporate sector increased significantly in the fourth quarter of 2013, according to lenders, and a further increase was expected in the first quarter of 2014," the Bank said. "Lenders reported that the availability of credit had increased for small businesses and large private non-financial corporations."
It added that the final three months of last year had also seen more credit become available for mortgages, particularly on homes with high loan-to-value ratios. A "significant" further increase in availability is expected in the first quarter of 2014.
The Bank said demand for credit remained patchy. Households and medium-sized businesses were taking advantage of the easier conditions, but demand from small businesses was flat and there was a slight increase in demand from big companies.
Threadneedle Street also reported lower interest rates for borrowers as measured by the spread between the official bank rate of 0.5% and the loan rates charged to individuals and businesses.
"Spreads on corporate lending fell in the fourth quarter, with significant reductions reported for medium-sized companies and large private non-financial corporations (PNFCs), and a slight reduction reported for small businesses. Over the next three months, lenders expected spreads to tighten further for medium-sized companies and large PNFCs, and to be little changed for small businesses."
Lee Hopley, chief economist at EEF, the manufacturers' organisation, said: "Steady improvements in credit conditions are continuing and the Bank's survey brings further signs that finance providers are making more credit available and risk appetite is increasing. However, the issue of cost is still lingering for smaller businesses. With a turnaround in investment on the cards for this year we will also need to see a real pick-up in net lending to businesses and fewer companies saying they have been discouraged from accessing external finance."
Howard Archer, economist at IHS Global Insight, said the pick-up in credit availability to companies was encouraging but had yet to translate into increased corporate lending.
"Indeed, latest data from the Bank of England shows that net lending to non-financial companies fell by £4.7bn in November. This was the sharpest drop since the series started in April 2011. Net lending had previously fallen by £1.1bn on October following a rare rise of £714m in September."
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