Credit conditions remained broadly stable for manufacturers over the past two months suggesting that any thawing in financial markets will only happen gradually according to a major survey published today.
The survey, published by EEF, the manufacturers’ organisation, shows that the proportion of companies reporting a rise in the overall cost of finance in the previous two months has been largely unchanged since the end of 2009. However over the same period we have seen the proportion of companies reporting rising fees and interest rates on existing lines of borrowing start to come down – albeit slowly. Accessing new lines of borrowing does, however, remains a problem for some companies, with nearly a fifth reporting a decrease in availability. But this has again moderated compared with the first quarter.
While any improvement in credit conditions was always going to take time the uncertainty around European sovereign debt and the potential for heightened risks for banks could lead to added caution for both companies and lenders. It is, therefore, vital that the government’s emergency Budget uses all available levers to provide companies with the confidence to invest.
Commenting, EEF Chief Economist, Ms Lee Hopley, said:
"Signs of a substantial improvement in credit conditions for business are taking longer than hoped for to emerge. Some companies are still feeling pressure from both rising cost and reduced availability of credit, but the numbers appear to be coming down gradually. There have been significant efforts to improve the situation, but there is simply no quick fix."
"Manufacturers have seen a steady improvement in their overall outlook, but financial market uncertainty continues to pose a potential risk to growth. The forthcoming Budget can help underpin confidence by providing a credible deficit reduction plan which will allow the MPC to keep Bank Rate low. And secondly by delivering a package of corporate tax reform that can support better balanced economic growth."
EEF has been tracking credit conditions for manufacturers on a quarterly basis since the end of 2007. Since then the cost of, and access to finance, had continued to deteriorate until the last quarter of 2009 when the situation began to ease. The latest survey shows that compared to the Q1 2010:
- Almost 35% of companies have seen the cost of finance increase (33% in Q1), whilst only 3% have seen a decrease.
- Almost a fifth of companies have seen access to new lines of borrowing decrease.
- Just under a third of companies have seen the cost of new borrowing increase, compared with almost 40% in q1, whilst a fifth has seen fees and interest rates on existing borrowing increase.
- Over 10% of companies reported increased availability of finance from their parent company, compared with 6% in q1.