Britain’s manufacturers are finally beginning to feel some relief from the combined efforts of the Bank of England and the government to unblock bank lending.
But despite manufacturers reporting an easing in credit conditions for the first time in over a year, it is clearly too soon to say conditions are back to normal and policymakers cannot afford to assume the issue closed.
Firms have been struggling with credit constraints for the best part of two years. Efforts to restore some normality to financial markets were always going to take time, but conditions are now starting to improve. If this continues it will help allay fears that credit constraints would derail companies’ ability to take advantage of the recovery.
That said, the government and the Bank of England will need to move carefully. Even as we start to see clearer signs of an upturn companies, especially SMEs, will remain vulnerable to higher costs or reductions in the availability of credit.
We've been tracking credit conditions for manufacturers on a quarterly basis since the end of 2007. For the first time, relatively fewer companies reported an increase in the cost of credit over the past two months. Equally importantly, considerably fewer companies have seen a reduction in the availability of new and existing credit facilities which implies lines of credit and finance are freeing up.
Key results:
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32% of firms reported an increase in the overall cost of finance from banks and other finance providers in the past two months. This compares with 47% in the third quarter and
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44% in the second quarter. This is the lowest figure since this survey was first conducted at the end of 2007.
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47% of companies saw the cost of new borrowing rise in the past two months, down from 56% in the previous quarter.
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The proportion of companies reporting higher fees on existing lines of credit fell to 28% from 43% in the third quarter.
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A fifth of companies reported a decline in availability of new lines of borrowing, down significantly from 33% in the third quarter and 42% in the second quarter.
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Fewer companies are also seeing a squeeze from parent companies, with 15% report a decline in finance from the parent compared with 24% in the third quarter.
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The pace of decline in the availability of credit insurance has also eased with 48% of companies reporting declining availability compared with 69% six months ago.
The survey was conducted between November 4th and 25th with 410 companies responding.