"Financing projects from £50,000 to £100 million"

Bank lending to increase in 2013 and 2014, says Ernst & Young

Bank lending to increase in 2013 and 2014, says Ernst & Young

Following a disappointing second half of 2012, bank lending to UK businesses is expected to rise this year and again in 2014.

According to a new report from the influential Ernst & Young ITEM Club, the value of commercial loans to businesses is expected to rise by 3% this year to £440 billion, as GDP growth reaches 0.6%.

It will then rise by 8.5% to £447 billion in 2014 as growth recovers to 1.9%.

The Club’s Spring Forecast, released earlier in the month, said that new measures such as ‘Help to Buy’ along with an extension to the £80 billion Funding for Lending Scheme would boost housing-related spending and consumption.

Ernst & Young Chief Economist, Mark Gregory, said that with banks signalling higher credit availability, businesses and consumers might consider it the time to refinance or plan for increased leverage.

In the latest report, the Club said that while the banking sector would not prove an active contributor to growth in itself, it should act as "less of a brake on the UK economy" this year.

Last year’s contraction on credit saw lending to businesses shrink by as much as 5%.

"From 2014 onwards, banks should be able to ease access to credit, thereby supporting an expansion in spending by both businesses and consumers," ITEM said.

However, it stressed the importance of keeping interest rates at their current low level to avoid unsettling the uncomfortable repayment burden still faced by some consumers and businesses.

"It wouldn't take a significant shift in interest rates to increase the repayment burden of families and businesses across the UK, at great social cost and with a detrimental knock on effect on lending," said Andy Baldwin, head of financial services in Europe at Ernst & Young.

Tuesday, 30 April 2013 12:21
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