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Business lending 'to shrink 5%'

Date Added: 01/11/2012  

New research has claimed that figures for 2012 will show business lending has dropped by almost five per cent when compared to the data for the previous 12 months.

According to a new study from the Ernst & Young ITEM Club, there is going to be a 4.6 per cent fall in the amount lent to UK businesses in 2012 compared to 2011 statistics.

Carl Astorri, senior economic adviser to the Ernst & Young ITEM Club outlook for financial services, stated there is some good news as this is likely to be the last year of such "marked deleveraging" in the UK, although he noted it will be the case that small to medium-sized enterprises will bear the brunt of it.

"Government schemes to increase lending may help a lucky few but, as banks are encouraged by regulators to store up more capital and to look again at their forbearance policies and so-called bad-loan books, most small business are going to continue to feel the squeeze," he said, adding the new British Business Bank's lending capacity may be exhausted in less than 12 months' time.

The Conservative-Liberal Democrat alliance has launched several policies since it came to power in May 2010 with the aim of improving business lending, but the flow of credit to those firms in need of extra finance remains slow.

Its latest plan is the British Business Bank, which was recently announced by the chancellor of the exchequer George Osborne, although reaction to the proposal was mixed.

"Even if the government aims to lend at market interest rates, it is unlikely to be able to avoid displacing existing lending activity," said Mr Astorri, who predicted the bank is going to have to compete for projects that are "commercially viable", which would mean it cannot have a "tangible impact" on the economy.

Sir Michael Snyder, senior partner at Kingston Smith, recently told the Daily Telegraph that banks should not be put under pressure to reduce the cost of loans.

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Posted by Julie Cutts

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