The leading UK forecaster said that on current trends, bank lending to businesses will shrink by 4.6pc, dropping to £429bn by the end of the year, reports The Telegraph.
The ITEM Club said the rate of decline is slower than last year – lending dropped by 6.1pc in 2011 – and there were signs of recovery in the financial sector that should have a positive impact going forward. However, the economists warned bank lending would not recover to 2008 levels for another four years.
Carl Astorri, senior economic adviser to the ITEM Club said: “The good news is that 2012 is likely to be the last year of such marked deleveraging in the UK; the bad news is that, once again, SMEs will bear the brunt of it.”
Last week the British Bankers Association said that lending to non-financial businesses showed a £1bn drop in September while there was a 7.7pc fall in loans and overdrafts.
The ITEM Club said the Government’s plans to boost lending to small firms – particularly the British Business Bank – were inadequate. Lending from the proposed state-funded bank, which is expected to have £10bn capacity, would run out in around six months, according to the forecasters.
According to the Bank of England, high street banks lent £44.2bn to businesses in the first quarter of 2012, but 38pc of applications were rejected. To bring the rejection rate down to the pre-crisis level of 11pc, an extra £19bn of funds are needed, the ITEM Club has argued.
Mr Astorri said: “The figures suggest that the British Business Bank’s lending capacity could be exhausted in less than a year. Its impact will also be reduced by competition with private sector lending activity: even if the Government aims to lend at market interest rates, it is unlikely to be able to avoid displacing existing lending activity.” The ITEM Club economists said they “remain sceptical” about the ability of the £80bn Funding for Lending scheme to stimulate lending growth.
