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Negative interest rates 'would not boost business lending'

Date Added: 15/03/2013  

Business lending in the UK has been falling despite the attempts of the government to open the flow of credit between banks and small to medium-sized enterprises (SMEs).

Data recently revealed there was a £2.4 billion drop in lending to firms in the last three months of 2012, despite the launch of the Funding for Lending Scheme by the coalition and the Bank of England earlier in the year.

It is rumoured that the Bank is now looking into negative interest rates as a potential way to improve business lending conditions in the UK.

But according to Nigel Maine, European head of marketing at Finpoint, this would not have the desired impact on the state of business lending for the country's SMEs.

In an article for Fresh Business Thinking, he explained that there are "other, more fundamental challenges" that need to be overcome by the Conservative-Liberal Democrat alliance before the Bank of England can think about "implementing radical policies such as negative interest rates".

"As a result the impact of such policies may be limited, and in addition may add to borrowing costs. Nevertheless online matchmaking platforms oil the wheels of financing, to the benefit of borrowers and lenders alike," Mr Maine said.

He noted negative interest rates would mean banks would be charged interest when holding their spare cash on deposit with the Bank of England.

The base rate of interest in the UK has been held at a record low for the country of 0.5 per cent by the Monetary Policy Committee at the Bank for the last four years.

Data released in the latest BDRC Finance Monitor for SME recently showed first time applicants (FTAs) are finding it particularly hard to be approved for their loans.

Spokesman Robert Downes said these FTAs are often the firms that are most in need of business lending in order to help them get up and running.

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Posted by Michael Beam

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