A new report predicts UK bank lending to fall in 2012. Image courtesy of: sxc.hu
Lending by UK banks will fall this year for the first time since 2009, according to an economic forecasting group.
Total lending is expected to fall by 2.2 percent, according to the Ernst & Young Item Club
, with corporate lending and consumer lending down 5.7 and 5.4 percent respectively.
This is a substantial drop after the 4.3 percent increase in total lending last year, although the Item Club predicts a 0.9 percent rise in lending in 2013.
"Funding for small and medium-sized enterprises is likely to be particularly difficult to obtain as banks seek to reduce credit risk," said Neil Blake, senior economic adviser at the Item Club.
"The average interest rate on smaller loans, of £1m or less, is already double that charged on loans of £20m or more, and we expect this trend to continue.
"As these young companies tend to be high-growth businesses, this will have adverse knock-on effects for economic growth."
The Club said the construction and real estate sectors, as well as SMEs, are likely to be particularly hard hit by the reduction in available credit.
Despite the increase in bank lending to businesses in 2011 brought about by the Project Merlin
agreement, small businesses are still reporting being unable to access the finance they need, because much of this increased lending budget went to larger firms.
Although the reduction in lending is bad news for businesses, there is evidence the gap is being filled by alternative lenders, with the Item Club’s report suggesting a 42 percent rise in loans provided by alternative consumer credit providers since 2007.
It added that many consumers are increasingly looking at non-traditional forms of financing, such as payday loans.