Blackfriar: SMEs are still waiting for the flow of credit from lenders

Those who hoped the Funding for Lending Scheme would be one will be sorely disappointed by yesterday’s Bank of England agents’ summary of business conditions.

Its agents told of a scheme which is working in one area – starting to free up mortgages – but having minimal effect on small business loans.

FLS, launched in August, was always a dual scheme, intended to boost both the housing market and the army of small businesses who will drive Britain back to sustained growth. But right now, it appears the opposite is happening for SMEs.

“Some business lenders appeared still to be tightening terms,” said the BoE. Companies are seeing banks shrink overdrafts and demand additional security. This is having a few noticeable effects: firms are trying to hold on to cash and avoid debt where they can. When medium-sized firms need to borrow, they are increasingly looking at other forms of non-bank lending. Bond issues have become a popular tool for mid-tier firms.

“The Funding for Lending Scheme appeared likely to have a more immediate impact on the availability of residential mortgage lending than on business lending,” said the BoE, with a degree of hope.

While perhaps it is too soon to judge banks on the FLS, the agents point to a worrying trend – credit tightening rather than loosening for SMEs.

Big firms, awash with cash, by and large do not need stimulus tools like this to grow. What they need are clear signals that the economy is back on the path to sustained growth to start spending their vast cash piles. But prospects for businesses investment remain “very modest”, the BoE said.

Freeing up this flow of credit to small businesses is vital to getting the economy back on its feet. Lenders need to live up to their FLS promises – not just on mortgage lending.

Meat, a core part of the western diet and a major part of Yorkshire’s economy, is not an easy game to be in at the moment.

Poultry tycoon Ranjit Boparan summed it up recently when he described the combined effect of the changing global economy, pressure on consumers and high commodity inflation.

“We’ve got the perfect storm when you look at the environment and the world population, and the emerging countries start consuming protein. I think we’re definitely in for a difficult and tough time in the protein market,” said the owner of Yorkshire’s Northern Foods.

This week’s decision by meat giant Vion to sell its UK business is an extreme reaction to this tough environment.

Vion decided to cut its losses with its 2.4bn euro UK business and refocus on the Netherlands and Germany. Shrinking is not working – instead, it wants out completely, and its UK pork, beef, lamb and poultry operations are on the block.

The decisions are “not easy... but essential”, said Vion chief executive Dirk Kloosterboer.

Meat producers, including Mr Boparan’s 2 Sisters and Hull-based Cranswick, are in the middle of tough conversations with retailers over passing on costs.

2 Sisters described these as “essential to secure the viability and supply of the poultry farming and processing capability in the UK”. Cranswick CEO Adam Couch said “all parts of the supply chain must remain responsible”, adding “everybody has a part to play, from producer to processor to retailer”.

Industries such as pig farming in Yorkshire need these talks to be successful, if their pig herds are to have a sustainable future.

Vion’s UK plants need committed new owners, who will invest in growth. The UK’s meat industry is a world-class one, and its products command a premium. It is an industry worth fighting for at the highest level.

The decision by Communisis to move its headquarters from Leeds to London is another blow to Yorkshire’s economic clout.

The print and marketing group’s chief executive Andy Blundell said this week that while its registered office remains in Leeds, its head office has migrated south. Communisis was clearly a business in need of modernisation and Mr Blundell’s tough decisions and expansion in marketing services have delivered strong profits growth.

Meanwhile, he has invested in new technology, including colour digital print lines in Leeds and Liverpool.

“We’re one of the most important plcs left in the region,” said Mr Blundell. “There’s a lot of heritage with us in Leeds and it’s still an important part of the business.”

But staff numbers at its Leeds direct mail site continue to fall, and another 16 jobs are going as ‘mature’ business workloads fall.

Communisis’s revived fortunes have come at a cost. Ultimately, its headquarters move means another set of decision-makers is no longer based in the region, potentially widening the north/south divide.