Item Club predicts rise in lending to UK businesses

image captionLending to firms fell by 5% last year

Bank lending to UK businesses will rise in 2013, the first increase for four years, the Ernst & Young (E&Y) Item Club has predicted.

The forecasting group's financial services outlook estimates that lending will rise by 3% to £440bn this year.

The report says this year's increase is being led by the commercial banks having better access to wholesale funding, and a fall in bad debts.

This year's predicted rise follows after a fall of 5% in 2012.

The report also said that the government's Funding for Lending Scheme was making a "material difference".

'Encouraging lending'

Under the FLS scheme, the Bank of England allows the banks and building societies to lend more cheaply, on the condition that they pass on the funds to customers, both businesses and consumers, in the form of cheaper loans and mortgages.

Last week it was announced that FLS would be extended by another year to 2015. The Bank of England also confirmed that non-bank lenders would be able to participate.

Andy Baldwin, head of financial services in Europe at E&Y, said: "Behind the scenes, banking fundamentals have quietly been improving and banks are now in a better position to be able to provide funds to the wider economy.

"Our analysis suggests the main drivers of banks' return to lending will be better access to wholesale funding and a decrease in non-performing loans, rather than the Funding for Lending Scheme making a material difference.

"That said, the scheme is making a contribution in shifting emphasis and encouraging lending expansion across the sector while also helping to restore confidence and stimulate demand from consumers and SMEs [small and medium businesses] alike."

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