The flow of net lending to British firms fell in July by the biggest amount on record, the Bank of England said today, in a further sign that more may need to be done to get credit flowing in the economy again.
However, mortgage approvals by major UK lenders rose in August for the seventh consecutive month to 57,000 from 53,000 in July, the BoE's monthly Trends in Lending report showed.
The net flow of lending to UK businesses fell £15.5 billion in July after a £3.6 billion fall in June -- the biggest decline since the series began in 1998.
"Major UK lenders indicated that their stock of lending to businesses fell further in August," the BoE said, adding that the weakness in July was across all sectors of the economy.
On a year ago, lending to companies was down 3.3 percent in July and the BoE said the outstanding stock of loans to UK businesses by UK resident foreign lenders had contracted very sharply in recent months.
The poor business lending figures are likely to worry policymakers given their extensive and costly efforts aimed at improving the flow of finance to recession-hit companies.
The BoE, which has slashed interest rates to a record low of 0.5 per cent and started buying assets to boost activity this year, has said it will take some time for its £175 billion quantitative easing efforts to feed through.
But the BoE may have to consider cutting the interest rate it pays on commercial banks' deposits held at the central bank to encourage lenders to pass on capital.
Separately, the BoE published provisional figures for broad money supply growth -- an indicator back in vogue as a way to gauge if QE is working.
In August, M4 broad money supply grew just 0.1 per cent after a 1.3 per cent rise in July. On the year, M4 was 12.6 per cent higher -- the weakest annual rate since September 2008.
Reuters