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Net lending to businesses falls again

A report by the Bank of England has confirmed what many in the business arena already knew with net lending to businesses contracting by £2.5 billion in July following a £3.2 billion reduction in June. This has resulted in the slowest annual rate of increase for almost a year and when you also take into account the fact that the Bank of England's M4 money supply figure fell by 0.2% in August, leaving the annual rate at just 1.8% (the weakest since records began in 1983) it is easy to see why UK businesses are struggling.

In many ways we are unlikely to see any improvement in the UK economy until credit lines are back in place and businesses are able to depend upon their banks for short-term finance to see them through the potential economic downturn ahead of us. There is some concern that credit lines are shrinking when you bear in mind that the Bank of England has already injected £200 billion into the economy via the quantitative easing program. So what will it take to improve prospects for the UK credit market?

Until we see on improvement in confidence in the UK economy, and especially from the UK banking arena, we are likely to see more trouble in the short to medium term. As a consequence it may well again be left to the Bank of England to inject further capital into the money markets with the introduction of yet another quantitative easing program.

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