The Bank of England’s Trends in Lending report as well as the sale of Lloyds branches to the Co-Op have prompted urgent action to make UK banking more competitive.
Industry bodies have united in a call for swifter, deeper action to reform the banking system during an extraordinary week for corporate finance.
After the launch of the Funding for Lending scheme on July 13, the Chancellor George Osborne announced on Wednesday plans for a £5bn export guarantee facility to smooth exports as part of a £50bn financial stimulus package.
The Bank of England’s latest Trends in Lending report, released Thursday, proved that lending is falling and prices are rising, the opposite of what is required to boost growth.
The sale of 632 branches of Lloyds Bank announced on the same day was welcomed by industry experts but shows how much damage has been done to the one-time bulletproof structure of the UK’s Big Six high street banks model.
Steve Radley, director of policy at manufacturer’s organisation EEF, said that the sale of Lloyds branches is encouraging progress for UK banking. “This move is positive for banking competition in the UK, creating a challenger at reasonable scale to the big players in the SME banking market.”
However, he said that getting new lending into the real economy continues to be a struggle five years on from the onset of the financial crisis and this needs to be tackled.
“We need a much more vibrant and competitive banking sector coupled with diverse alternative sources of finance outside of banks. This will sustainably improve access to finance for companies that we need to see investing for the good of the wider economy,” noted the EEF director of policy.
CBI director general John Cridland commented: “The Treasury and Bank of England have signalled a willingness to relax liquidity rules, but the Financial Services Authority needs to drive forward with these changes immediately so that banks can release funding into the economy.”
Mr Cridland’s comments came as the CBI released its Financing for growth: refocused finance for a rebalanced economy report which sets out measures to support lending in the economy.
“With lending levels falling and prices rising, we need immediate action to boost lending in the economy to help growth,” Mr Cridland said.