Bank lending to UK manufacturers slows amid concern for 2015 prospects

Bank lending to Britain’s factory owners slowed in December according to industry figures on Tuesday that indicate growing unease among manufacturers at the prospects for 2015.

The British Banker’s Association (BBA) reported that growth in bank lending to the manufacturing sector more than halved in the last six months and declined by £624m in December, compared to a £217m expansion of credit in the previous month.

The figures also show that borrowing by companies outside the financial sector contracted by £15.7bn in 2014, compared with a decline of £11.6bn in 2013.

The BBA played down the sharp decline, saying the figures can be volatile. It said much of the contraction in lending to non-financial firms was due to a collapse in borrowing by real estate businesses and a switch by large corporations from bank lending to the bond markets as a source of finance.

It said that 2014 saw positive borrowing growth in the manufacturing, wholesale and retail sectors.

But the recent decline in manufacturing chimes with comments by the British Chambers of Commerce, which has called on the government to boost investment to overcome nervousness in the sector.

Richard Woolhouse, the BBA’s chief economist, said: “Business lending has been falling as larger firms have used the bond market rather than borrowing from banks.

He added: “Despite this, outside real estate, businesses are generally expanding their lending.”

The BBA figures also cover the number of mortgage approvals made to home buyers, which fell to a 20-month low in December.

Some 35,667 home loans with a collective value of £5.8bn were approved last month, marking a 24% decrease compared with December 2013, and the lowest monthly total recorded by the BBA since April 2013.

Some 499,000 house-purchase approvals were recorded in 2014, an increase of 9% on 2013, but the total was still 50% below the peak recorded in 2002.

Meanwhile, annual growth in non-mortgage borrowing is continuing to run at its highest rate for six years, the BBA reported.

Emphasising the UK’s reliance on unsecured debt to fuel spending on the high street, it said the value of credit-card purchases jumped 11% in December compared with the same month in 2013.

Woolhouse said many people were starting to feel more secure about their jobs and personal situations, which was helping to encourage more big ticket purchases such as a new car or a home-improvement project.