Britain’s big businesses cut back on borrowing from banks

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Investment projects in the UK could already be on hold after official figures revealed Britain’s big businesses cut back on borrowing from banks in the run up to the EU referendum.

Banks reported that “demand for corporate lending decreased significantly for large companies” in the three months to the middle of June, according to a survey from the Bank of England.

Mark Carney, governor of the Bank of England, has loosened the capital requirements on banks to free up more lending, but conceded that he cannot force households and firms to borrow.

Siemens, which makes wind turbines in Britain, said it is putting its wind power investment plans on hold CREDIT: GRAHAM/REX SHUTTERSTOCK

By tweaking the capital rules to boost lending, Mr Carney said as much as £150bn of extra cash was now available to borrowers. This means there should be few constraints stopping banks from giving out new loans. The aim of the policy is to ensure that any Brexit-related economic slowdown does not end up in a financial crisis where banks stop lending.

The credit conditions survey from the Bank of England indicated that the policy was working, with the availability of loans to companies and unsecured loans to households unchanged.

“In discussions that took place after the EU referendum, the major UK lenders expected the availability of secured credit to be little changed in the near term but the demand for secured credit to fall,” the Bank of England said.

The figures from the survey also suggest that while demand for new loans from larger businesses dipped, demand from smaller firms and households did not fall in the run up to the referendum.

“Demand for lending from small businesses increased, and demand from medium-sized businesses increased slightly,” the Bank of England said.

Bank of England frees up £150 billion more in lendingPlay!01:34

Mr Carney said this week that changing rules on capital requirements was “part of a series of measures” to help keep the economy on an even keel.

This may be a hint that the Bank of England’s Monetary Policy Committee will take action tomorrow to stimulate the economy.

Such a move could include trimming interest rates from their record lows of 0.5pc to 0.25pc or even lower. Alternative measures, such as a souped-up version of the Funding for Lending Scheme, have also been put forward as ways to encourage lending and borrowing.

 

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