Cautious lenders left companies with lowest level of credit since 2008
The amount of credit made available to corporates last quarter fell to a level not seen since the Global Financial Crisis.
The Bank of England’s (BoE) credit conditions survey released today showed that available credit for corporates fell for its sixth successive quarter in the fourth quarter of 2019.
It dropped to minus 9.2 in the fourth quarter, down from minus 3.5 in the third quarter – its fastest rate of decline since the fourth quarter of 2008.
There was a particular weakness in credit made available to the commercial real estate sector.
The survey found that banks will likely retain their cautious approach in lending to companies, with credit likely to decrease slightly in the first quarter of 2020.
Additionally the balance for expected demand for credit for capital investment over the next three months fell to minus 27.4 from minus 18.5, its weakest since the first quarter of 2009.
Howard Archer, chief economic advisor at EY’s Item club, suggested that lenders had been concerned about domestic political uncertainty and a struggling economy. He said: “This was likely to weigh down on business activity and profitability, thereby making businesses less attractive and more risky to lend to.”
Business demand for borrowing was also reported to have fallen across corporations of all sizes.
Colin Jackson, financial analyst at Goodbody, said that despite the gloomy outlook, “the survey results are unlikely to fully account for the significant Tory victory in the UK General Election and the economic certainty this victory presents.”
However, the survey may do little to dampen the concerns of the BoE’s Monetary Policy Committee’s over subdued economic activity, as the bank expects demand for credit for business investment to fall.
There has been speculation as to whether the bank will cut interest rates from 0.75 per cent to 0.5 per cent at the end of January. Mark Carney, Silvana Tenreyro and Gertjan Vlieghe have indicated they could vote for a cut if the economy shows little sign of picking up following the December election.
The BoE also expects the availability for mortgage lending to weaken in the first quarter.
Andrew Montlake, managing director of mortgage broker Coreco, said this would be “almost certainly due to the General Election and broader political chaos of the autumn.”
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