Bank of England governor Mervyn King recently admitted that UK SMEs were 'suffering'
Bank of England governor Mervyn King recently said that small businesses are ‘suffering’ due to the reduction in bank lending.
King said that the problem was one for Government to fix, not the central bank, and that there were no monetary policy steps that would yield an improvement in credit access for small and medium sized enterprises.
The governor made his comments after revising the UK’s growth forecast for 2011 down from 1.8 percent to 1.5 percent. They come just before the Bank releases its second quarter results for the Project Merlin deal.
Project Merlin aims to increase the amount of capital lent to businesses – particularly SMEs – by agreeing lending targets between the Government and the five biggest high street banks.
"This is a problem of the structure of the banking system, and questions about the allocation of credit," King said in a press conference following the launch of the Bank’s quarterly
Inflation Report.
"And those are fiscal actions and they're for government, not for a central bank. It's very dangerous for a central bank to stray, as you know, into political territory, and we don't intend to do that.
"The amount of lending by the banking system to non-financial companies is falling. It's been falling for some while, and it's still falling. This is a natural consequence of the deleveraging of the banking system.
"But let's be clear about it, it is falling; and particularly problematic for small companies because at least big companies can go to the stock market to issue equity, or to the corporate bond markets to raise money through the issuance of bonds. Small companies don't have that opportunity, and they're suffering as a result.
"But this is a question about the allocation of credit within the economy, and that's very much a fiscal decision, and that is a matter for government."
Richard Woolhouse, head of fiscal policy at the
Confederation of Business Industry (CBI), said: "This is similar to the CBI’s latest economic forecast, which predicted GDP growth of 1.3 percent in 2011 and slightly stronger growth the following year of 2.2 percent, as business investment strengthens and net trade makes a solid contribution. But as the bank emphasised, uncertain global economic conditions are a significant risk to the outlook."