Commercial Lending Dives at a Record Rate!

Bank lending to UK businesses is 8.1% lower than a year ago! Latest official figures show the fastest drop in commercial borrowing since records began. And the credit crunch is not to blame as demand for borrowing remains “muted” in the words of RBS’ economist Ross Walker.

The data is contained in the Bank of England’s latest trends report. Lenders have explained that clients are postponing investment and exercising tighter inventory management. The survey was conducted in December and banks also see that de-stocking cycle coming to an end

The report provides the first whispers that the margin increases I have previously blogged about may be coming to an end; certainly in the large corporate market. Contributors reported signs that foreign lenders were returning to the UK market and that there is downward pressure on margins for large facilities when credit ratings are of the very highest quality.

Looking forward the major UK lenders suggested that a key factor of loan pricing will be the cost of banks’ own longer-term wholesale funding. The consensus is cautious on that front. And given other news today that the Government borrowed in January for the first time since records began that’s no surprise.

The entire report is available here http://www.bankofengland.co.uk/publications/other/monetary/TrendsFebruary10.pdf