SME lending 'in decline'

Lending to small businesses is in decline, the latest banking industry figures suggest.

Although the British Bankers' Association (BBA) small business support figures show that lending to small and medium enterprises (SMEs) rose by £75 million between May and June this year, business groups have countered this by highlighting how June's figure was significantly down on the same month last year.

According to the Forum of Private Business (FPB), the £598 million loaned in June - down from £867 million in 2010 - confirms its own research, which found that lending is down in comparison to 2009, when the UK was still in the grip of recession.

However, despite the recession officially ending in January, in each of the first six months of 2010 bank lending to small firms was lower than it had been in the same month of 2009.

The BBA figures make clear how total monthly lending to small businesses has fallen sharply over the last three years - from £991 million in the average month of 2008, to £633 million last year. The current monthly average for 2010 is lower still at £564 million.

Matthew Goodman, FPB head of policy said: "Our own research shows that both loans and overdrafts have decreased since the start of June - at a time small businesses need more finance in order to expand.

"The need for finance is only going to increase as the economy grows and as small firms, which must be the catalyst for sustained economic recovery, try to meet renewed demand."

According to the British Chambers of Commerce (BCC) economist Steve Hughes, however, the situation is more complicated than it seems, and resolving it will take more than "simply forcing banks to lend when demand among businesses is muted".

"Bank lending is a crucial issue for Britain's small- and medium-sized businesses, and getting the existing concerns resolved quickly is essential if we are going to see a lasting private sector-led recovery," he added.

"Nonetheless, the banks must be as transparent as possible when decisions are made, and ensure that their decision-making processes are not over centralised, tick-box, or removed from the front line."

Keeping interest going

Meanwhile the Bank of England kept interest rates at their historic 0.5% low for an 18th straight month - suggesting that its decision-making Monetary Policy Committee does not give much credence to worries about high inflation.

While the Bank expects the Consumer Price Index measure of inflation to fall from its 3.2% position towards its 2% target rate by the end of the year, the latest report shows that non-food shop prices are rising at the slowest rate this year.

According to July's British Retail Consortium (BRC)-Nielsen shop price index, overall shop price inflation remained unchanged from June, at 1.5% - though food inflation increased from 1.7% to 2.5%.

BRC director-general Stephen Robertson said that the findings were "good news for customers", adding that "it's clear the high street is the not the main source of inflation".

IMAGE Gareth Fuller/PA Wire

However you rate your interest, you can bank on insurance from MORE TH>N. Ask us for a cheap shop insurance quote today, or find out about our great value van insurance.