Record surge in lending to small firms boosts recovery

evening standard report:::: A record rise in small business loans gave more cheer for the economy today as momentum builds behind efforts to unlock credit markets. Bank of England figures revealed a £238 million increase in lending to small businesses during June — the highest since the Bank began collecting the data two years ago, and bucking a £1.3 billion decline in business lending overall. June’s rise failed to reverse fully a £476 million fall in lending during the previous month, but comes after changes to the Bank’s Funding for Lending Scheme in April, which massively incentivised banks to lend to small businesses until the end of the year. The Bank defines small and medium sized businesses as those with a turnover of less than £25 million. The brighter news on politically sensitive small business lending marks more good news for the Chancellor after the wider economy managed to double the pace of growth to 0.6% between April and June. IHS Global Insight said: “The rise in bank lending may also be a sign that smaller companies are starting to step up their borrowing as recently improving economic activity lifts their confidence and need for capital.” The average cost of new loans for businesses also fell sharply by 0.23% to 2.41%, the cheapest overall rate since December 2010. A Federation of Small Business spokesman added: “This is encouraging news but there is still a way to go. Our most recent survey showed 50% of our members still being refused credit although the benefits of the FLS are slowly beginning to feed through.” Despite the boost for small businesses, mortgage approvals surprisingly dipped over the month to 57,667, nearly 2,000 short of City hopes. The FLS has had far more impact on mortgage lending so far and while the Government’s Help to Buy scheme gave the market a further kick. Shoppers are meanwhile still showing signs of caution after consumer credit rose by a net £489 million in June, well below May’s £781 million and the smallest rise since January. Berenberg chief economist Rob Wood said: “The mortgage data are likely to be a blip given how strong housing surveys are and how much stimulus is in the pipeline. “We are optimistic about the UK’s chances of continued recovery, but today’s data highlight the risks. Any reduction in household’s appetite for spending rather than saving would weigh heavily on the recovery.”