New figures challenge govt bid to boost credit for UK companies

Posted on 23 Jul 2012

The government’s efforts to increase the ability of companies to receive funding were called into question today as figures showed that borrowing by UK businesses will fall again in 2012.

The Ernst & Young Item Club forecasts a 6.2% drop in corporate borrowing with the economic crisis expected to erase any incentive to lending that the “funding for lending” scheme hoped to support.

In a bid to boost lending to small companies (business investment is set increase by 4.3% in 2012, which shows larger organisations already have the funds they need in order to grow), the scheme allows for banks to swap illiquid assets for government bills.

The risk of default is likely to worry lending institutions: corporate loan write-offs are expected to reach 2%, a level that was last recorded in the 1990s.