Bank lending to businesses contracts in first quarter

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The Bank of England said net lending to businesses by banks and building societies taking part in its Funding for Lending Scheme (FLS) fell by £2.7bn in the first quarter of 2014.

Banks have drawn down £43.3bn of cheap funds from the FLS since it was introduced last year. The latest data covers an extension to the scheme which was designed to provide cheap funding for banks and building societies to lend to businesses.

The data showed net lending fell the most at Britain’s biggest retail bank Lloyds, which lent £2bn less to businesses during the period. Phil Orford MBE, chief executive of the Forum of Private Business, said the figures would have been worse were it not for the extension of FLS.

He said: “The figures replicate the findings of the most recent SME Finance Monitor, which continues to show a subdued appetite for lending. At a sectoral level some of the decline in lending is down to reduced appetite to lend to the real estate sector so for the rest of the economy the picture is slightly brighter.

“At a time when the economy is picking up there is no doubt the figures remain slightly disappointing. Banks are keen to stress they have money to lend and the Forum of Private Business continues to urge businesses that money is there to borrow at present, either through the main or challenger banks, or through alternative sources, some of which are highlighted on the excellent Alternative Business Finance website.”

Meanwhile, Bank of England policymaker Martin Weale said yesterday that the central bank should start raising interest rates sooner rather than later. “If you want to have baby steps, you do have to start sooner,” he added.