Investment headwinds gather pace as cost and availability of credit deteriorate.
Britain’s manufacturers are seeing lending conditions worsen with availability of finance declining and the cost of credit rising according to a major survey published today by EEF, the manufacturers’ organisation.
EEF’s latest Credit Conditions Survey for the fourth quarter came up with four key points:
- The balance of companies reporting an increase in the overall cost of finance rose to 17% from 12% in the previous quarter.
- On new lines of borrowing a balance of 24% of manufactures reported an increase in cost, including 31% of small companies. This compares with 8% and 3% respectively last quarter.
- Availability of new borrowing lines contracted, with a balance of 3% of companies reporting a fall compared with a balance of 7% saying the supply increased in the third quarter.
- Fees on existing credit lines increased for a balance of 21% of companies, the highest balance since 2011 Q1.
In response, EEF is urging the Chancellor to announce measures to address short term funding issues in the Autumn Statement a matter of urgency. This should include clarification of how credit easing will be used to improve access to finance particularly by bringing down the cost of credit.
The organisation is also recommending that alternative sources of finance outside of banks should be boosted and spread across debt and equity. For example the government’s Enterprise Investment Scheme should be expanded to cover debt as well as equity investments.
Commenting, EEF chief economist Ms Lee Hopley, said: “In the past few quarters we have finally seen some progress in increasing the supply of finance to manufacturers, but there are worrying signs that this has gone into reverse. Economic headwinds have picked up and there are growing signs of caution around short-term growth prospects. This is precisely the time where we need to see more, not less, investment if we are to create the investment and jobs our economy urgently needs.
“Companies will be looking to the Autumn Statement to take forward the government’s commitment to get on top of short term lending challenges with a comprehensive package of measures to address supply constraints, especially for small firms. This should include clarification of how credit easing will bring down the cost of finance for small companies.”
EEF’s own survey comes on the back of last week’s SME Finance Monitor published by the BDRC Continental, financed by the major UK banks, which showed that manufacturers were more likely to have new/renewed loan requests declined. In addition, 37% of new/renewed loan requests by manufacturing companies required security compared with 25% for the overall sample.
For more info head to the blog by Andrew Johnson, senior economist at the manufacturers’ organisation EEF, available in our blog box.