Fragility haunts corporate and housing sector

The fragile state of lending to the corporate and housing sector has been confirmed in the latest reports from Council of Mortgage Lenders and the Bank of England.

The CML said that mortgage lending edged only slightly higher in February, after diving by a third during the previous month. Around £9.2bn was advanced to borrowers during the month, 6 per cent more than in January, when lending levels were hit by the end of the Government's stamp duty holiday, according to the CML.

The poor weather has also been blamed by many in the trade for the weak market at the start of the year. The group said it is "unusual" for advances to rise during February, although it added that it is less surprising this year as the December and January figures were distorted by the change to the stamp duty threshold.

Meanwhile, the CBI's industrial trends survey for March was modestly softer compared to February's report but nevertheless suggested that the sector's modest upturn remains intact.

The Bank of England’s Trends in Lending report confirmed the picture of a faltering supply of credit. The Bank said that net lending to UK businesses weakened in January and that the stock of lending to businesses has fallen in recent months including for lending to small and medium-sized enterprises. Contacts of the Bank’s Agents reported that the overall

Availability of credit continued to improve, though by more for larger businesses than smaller ones. The major UK lenders reported that demand for credit remained subdued. The effective interest rate on new lending to companies was unchanged in January, but smaller businesses are being charged more. Some 77 per cent of loans arranged in 2009 were subject to arrangement fees compared to 59 per cent in 2007.

Howard Archer, an economist at Global Insight, said: “It is evident that ongoing very weak bank lending to companies is being influenced significantly by low demand for credit in addition to restricted supply. Nevertheless, the Bank of England's March Trends in Lending survey reinforces concern that ongoing tight credit conditions remain a serious obstacle to significant, sustainable recovery. Lack of access to credit for smaller businesses remains a particular problem. This keeps open the possibility that the Bank of England could revive Quantitative Easing, especially if the economy shows serious signs of faltering over the next few months."