2010.07.2006:22:00UTC+00BoE: Net Lending To U.K. Businesses Remained Negative In May

The flow of net lending to U.K. businesses remained negative in May, latest credit conditions survey by the Bank of England showed Tuesday. Lending to businesses contracted by GBP 2.3 billion in May, much sharper than the GBP 1.1 billion fall seen in April.

The BoE said credit availability to businesses overall increased, but by less than lenders had expected. It noted that recent discussions with most major U.K. lenders revealed that spreads over reference rates on new lending to large businesses had leveled off after recent declines.

The BoE's network of agents reported that demand for credit remained muted. In recent discussions, the major U.K. lenders expected corporate credit demand to remain subdued in coming months.

Further, the flow of net mortgage lending by all U.K-resident mortgage lenders increased in May, to GBP 1.2 billion from GBP 1 billion in April. Gross mortgage approvals declined slightly in June according to data from the major U.K. lenders. Demand for secured credit for house purchase was reported to have weakened in the second quarter of 2010. The major U.K lenders expected demand for secured lending to remain muted.

Total net consumer credit flows turned positive again in May, though the annual growth rate in the stock of lending remained flat. The BoE said spreads between effective interest rates and Bank Rate and Libor remain significantly wider than in late 2008, particularly on interest-bearing credit cards, reflecting in part heightened credit risk.

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