Why is bank lending to businesses still weak?
Despite the fact that the UK government has assisted and in some cases attempted to force additional bank lending to businesses in the UK there is great concern after business lending fell again in April. At a time when the UK economy is struggling to pull free of the recession there is a belief that unless bank lending increases to small, medium and large sized businesses we could see a whole raft of failures in the short to medium term. So why are UK banks holding back?
In what is inevitably a case of "the chicken and the egg", banks are concerned about the weakness of the UK economy and therefore holding back on investment which is obviously needed to push the UK economy back into a growth path. So what comes first?
At some point UK banks will need to increase their investment into the UK business arena because the UK government has no money to fund short-term initiatives and indeed with public sector spending set to fall and taxes set to rise there will be a squeeze from both sides, on businesses and individuals. However, having demanded that UK banks are more "cautious" with their investment in the future maybe demanding investment into the UK business arena at this stage of the economic revival is slightly hypocritical?
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