Lending to businesses falls for second consecutive month

by Kay Murchie

In its latest “Trends in Lending” report, the Bank of England said the flow of credit to British businesses fell to £3.4 billion in May and followed a drop of £6 billion the previous month.

During 2007, the normal levels of lending were £7 billion per month and £4 billion in 2008 - when the credit crunch was well and truly in full swing.

The latest figures are certain to cast doubt over whether the quantitative easing (QE) programme is effective. QE (also known as printing money) is a process whereby the Treasury injects funds into the financial system to ease pressure on banks by giving them extra capital.

So far the Bank of England has injected £125 billion into the economy via the QE scheme and is to review the programme early next month.

The news comes as the Council of Mortgage Lenders (CML) announced a surge in home loan lending for the month of June.

Lending reached £12.3 billion for the month, up from £10.5 billion the previous month, according to the CML.

However, the organisation points out that the June rise is attributed to a seasonal increase and the gross lending figure is still 48% lower when compared with June last year.

Meanwhile, the news also comes as the National Audit Office revealed that the Government’s tax take slumped by £32 billion last year.

In other news today, it has been reported that public sector borrowing has reached £13 billion, according to figures from the Office for National Statistics.