July’s repayment level was far higher than the £3.5bn average over the past six months and was, in fact, the highest since March 2012, which challenges Bank Governor, Mark Carney’s argument that his policy of keeping interest rates unchanged until employment falls to 7 per cent will encourage companies to borrow and invest.
Mr Carney unveiled a potential credit boost to businesses last week when he said the Prudential Regulation Authority would allow the big high street banks and building societies to free up £90bn of funds, providing they meet regulatory capital thresholds equivalent to 7 per cent of their loans.
However, economists say that the environment for credit remains “very subdued” and that those firms that are able to access loans were paying more.
The average interest rate on new lending to private non-financial businesses rose by 30 basis points to 2.71 per cent during the month “in a further indication that corporate financing conditions remain tight”.
Meanwhile, others say that many firms were using cash reserves to fund investment, rather than taking out more debt, so it is possible that these figures mask an even larger increase in investment activity that is currently under way.
The data also supports a general observation that capital and liquidity issues, with perhaps one or two exceptions, are not holding banks back from new lending.
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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