Lending in January fell at fastest pace since records began – BoE

Bank and building society lending to UK businesses fell at the sharpest pace for over 10 years in January, according to Bank of England figures released today.

Lending to businesses contracted £6.5bn for the first month of the year and was 9.3% lower than in January 2009 - marking the biggest decline since records began in 1999.

January's record plunge comes on the back of a £3.4bn drop in December, but major UK lenders say activity levels in February, although still subdued, were not as weak as for the previous month.

One reason for the fall, according to the Bank, is weakened demand from businesses as they look to reduce debt levels.  

The drop in lending levels is of particular concern to smaller companies which are more dependent on bank financing than larger companies that have access to capital markets.

The decline in lending flows comes after the UK Government has actively encouraged banks - especially those state-owned institutions - to lend more to businesses in an effort to stimulate growth.

It has also pumped £2bn into the economy via its quantitative easing programme to beef up banks' lending capacities.

The weak levels of lending to corporate UK will heighten concerns about the fragility of the country's recovery.

Meanwhile, total consumer flows edged higher in January, up £0.5bn. Some major UK lenders say underlying demand for consumer credit is expected to remain subdued as consumers look to reduce level of unsecured debt.

Net mortgage lending also rose in January, according to the Bank, up 1% on last year's figure. Figures from Lending Panel data also suggest net mortgage lending by the major UK lenders increased in February.