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Business Lending Slump Deepens, As Mortgage Approvals Hit Fresh High

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Telegraph 4/1/14

'The slump in business lending has deepened, it has emerged, further sharpening the contrast with a surging mortgage market. Companies took £4.7bn less in loans in November, the biggest drop in more than two years and nearly five times the recent average monthly decline of £1bn, according to figures from the Bank of England. The slide was due to a fall in lending to large businesses, as loans to small and medium-sized companies actually edged up slightly.

Economists are split over whether the decline is due to weak demand for bank finance or lenders’ reluctance to grant loans to business.

Howard Archer, chief UK economist at IHS, said the data suggested that banks “have yet to become markedly more prepared to lend to businesses amid the improved economic situation and outlook”. But Blerina Uruçi, economist at Barclays, believes businesses are unlikely to be held back by weak bank finance as the corporate sector has amassed a large cash surplus in recent years. Businesses are also increasingly turning to the bond market as a cheaper alternative.

Mark Carney, governor of the Bank of England, has redoubled efforts to boost business lending by making it the sole beneficiary of the Funding for Lending Scheme, which allows lenders to borrow at rock-bottom rates in exchange for providing loans. Previously, the scheme applied to all loans.

Meanwhile, mortgage approvals continued to rise, hitting a new five-year high of 70,759 in November.

The acceleration of mortgage lending, even as business loans decline, has led to worries that Britain’s recovery, which puts it on course to be one of the fastest growing developed economies this year, is unsustainable.

Concerns that government schemes to boost the housing market are creating a bubble were renewed yesterday (Fri) when Nationwide said prices staged their highest monthly increase in four years in November.

House prices rose 1.4pc in December, bringing the year-on-year increase to 8.4pc.

Initiatives for boosting mortgage lending, such as the Help to Buy scheme, remain in place, despite fears that government efforts to boost the housing market could fuel a bubble.

However the Bank of England has been tasked with monitoring the scheme and given powers to recommend changes if it detects signs that a housing bubble could be developing.'

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