Credit conditions improving for British businesses

The Bank of England (BOE) credit survey published Wednesday showed that credit conditions are improving for businesses as well as households, which will help underpin the current recovery in the British economy, economists said. "The figures are encouraging, and there is definitely an improvement in credit conditions in line with the improving outlook for the UK economy," said Suren Thiru, UK economist with the business body British Chambers of Commerce (BCC), in an interview with Xinhua. Issues persisted however, he added, saying that the BCC membership, particularly young, fast-growing companies are struggling to get the finance they need while safe bets -- large firms in business for a long time -- can get access to the finance they need. "It is the smaller firms which are struggling," he said. Howard Archer, chief British and European economist with IHS Global Insight, said the BOE credit conditions survey was "encouraging" as it indicated "credit conditions are improving for corporates as well as for households." The BOE survey reported a "significant" increase in credit availability to corporates in the fourth quarter of 2013, with a further increase expected in the first quarter of 2014. This comes against a background of continued reports from businesses and business organizations that one of the main obstacles to growth is the difficulty firms are having in obtaining finance for expansion. The BOE refocused its Funding for Lending Scheme (FLS) from the beginning of this year so that it no longer supplies resources to increase credit for mortgage borrowers, but solely focuses on funding for businesses, which was originally only part of its remit when set up by the BOE. It has to be hoped that this has a significant positive impulse amid a much improved business environment, Archer said. "Importantly, credit availability was reported to have increased for smaller companies as well as for larger ones," he added. Archer said the increase in credit availability was reported to be due to the improved economic outlook as well as from market share objectives, and competition from capital markets. The spreads on lending to corporates were reported to have fallen in the fourth quarter of 2013, although this was primarily for large and medium-sized companies, Archer added. A slight reduction was reported for small companies. Spreads are expected to tighten further in the first quarter of 2014, but again mainly for larger and medium-sized companies. He said that business demand for credit was likely to pick up appreciably in the coming months. Thiru said that there was a desire for more credit. "What is holding small businesses back is the phenomenon of discourage command -- firms want finance but know they won't, so don't apply in the first place." There was also an increase in credit availability for mortgage lending to householders in Q4 2013. The British government's Help to Buy Scheme, aimed at first-time buyers to give them greater access to credit, began in October and may have played a part in this. The spreads on mortgage lending fell significantly further in the fourth quarter, while demand for mortgages rose markedly, said Archer. "This is yet further evidence that housing market activity is gaining substantial momentum," he said. The availability of unsecured credit to households was reported to be unchanged in Q4 2013 after rising through the first three quarters.