Over the past two months the overall cost of credit for manufacturers has remained largely unchanged, but there are some signs that supply problems are starting to moderate for medium and larger companies according to a new EEF report on credit conditions in the UK. Over the past two months around three in ten companies reported an increase in the overall cost of credit, virtually unchanged now for three consecutive quarters. There has been, however, an increase in the share of companies seeing the cost of new lines of borrowing rise. The survey indicates a modest improvement in the supply of credit and the availability of new lines of borrowing, but this trend has been concentrated primarily amongst medium and large companies, with some small firms still facing constraints in accessing finance.
The survey found that over the past two months 31% of companies reported an increase in the overall cost of credit compared with 34% in q2 and 32% in q1; that the availability of new lines of borrowing increased for 13% of companies, compared with 8% in q2. but the cost of new borrowing rose for 37% of companies, up from 32% in q2. For companies with existing credit facilities, including overdrafts, the rates and fees were unchanged for 78% and 73% of firms respectively, largely unchanged from the previous quarter. The EEF's survey was published on the day that submissions close to the Government on the Access to Finance Green Paper, which is examining bank lending conditions and companies’ access to credit. Commenting on the survey Lee Hopley, Chief Economist said: “The recession and the crisis in financial markets have worsened the costs and conditions attached to accessing finance and the credit markets for many businesses. Despite the pick up in the economy, too few companies are seeing a significant improvement in lending conditions. “This was never likely to be a swift or easy process, but we are concerned that the rise in the cost of new borrowing may be signalling that the supply of finance is not able to keep up the upturn in manufacturing activity. “As banks rebuild their balance sheets and take a more cautious approach to risk given the uncertainty surrounding the recovery we are not likely to see much movement in these indicators in the short term. The fact that government has chosen to tackle this issue as an early priority, is therefore to be welcomed.”
