Despite government pressure and initiatives to get banks lending more to businesses, lending by UK banks and building societies fell by £4 billion in the three months to November, 2012.
The Bank of England released figures showing a contraction in lending to businesses of all sizes over this period, from small and medium-sized enterprises to large businesses.
The biggest fall in lending took place in November, with businesses borrowing £2.8bn less than in the October.
In the final three months of 2012, banks lent £24bn to large businesses, compared to £35bn in the same period in 2011. Lending to SMEs dropped by £2bn during the same period.
Santander, Barclays, HSBC, Lloyds, Nationwide and RBS account for around 70% lending to businesses, with gross lending to large businesses consistently falling throughout 2012.
The report from the Bank of England, titled Trends in Lending, says that the banks believe that the low level of lending “partly reflected a lack of mergers”.
However, a spokesperson for the Bank of England added that a fall in lending is partially down to a lack of trust between banks and businesses. “Demand has been pretty limited and there is a definite issue with confidence,” he said. The report stated that this has led to businesses “paying down debt as quickly as possible”.
Small and medium-sized businesses were most wary, with demand falling by 19%. Business Minister Michael Fallon recently admitted that there is no evidence the Funding for Lending scheme, designed to increase the amount of loans given to small businesses, is working.
The scheme, taken up by Barclays, Lloyds, RBS, Santander and Virgin Money, has had a slow start and today’s figures from the Bank of England shows that the scheme’s discounted business loans are not getting through.
“We need to make sure that taxpayer-funded schemes are getting through to the SMEs that need it,” said Mr Fallon.
Fallon told The Telegraph that pressure was being put on banks to ensure the government lending scheme achieved a greater uptake. Fallon said it was critical to make the funding option work because as he put it: “The taxpayer is putting a lot of money on the table.”
The scheme launched on 1 August 2011 and involves the government backing bank loans so that they can secure money at a cheaper price on the financial markets. These savings are then passed onto businesses.
“Weaker demand for finance among small and medium-sized businesses indicates that they are still lacking confidence to invest, so raising awareness of available schemes is crucial,” said Matthew Fell, director for Competitive Markets at trade body CBI.
“The British Business Bank must be put into action without delay to ensure government support is visible and reaching businesses that need it most,” he added.