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Credit conditions still tight despite low rates

Published 01/09/2009

Credit conditions remained “very tight” for manufacturing firms despite low levels of interest rates and government efforts to free up liquidity in the banking system, according to research out today.

A survey of 560 companies in the UK by the Engineering Employers Federation (EEF) found only a small reduction in the number of businesses finding it more difficult to access credit.

Only 7% of firms said there had been a fall in the cost of borrowing in recent months, while half reported an increase in the cost of finance from banks and other finance providers. This compared with 44% in the three months to June and 37% at the start of the year and was the highest figure since the survey was launched at the end of 2007.

Manufacturers also revealed higher costs for new lines of borrowing, according to the report which warned that tight credit conditions were likely to weaken the economy's recovery.

Steve Radley, the EEF's director of policy, said: “Despite low levels of interest rates and significant intervention by the government and the Bank of England, credit conditions remain very tight.

“Given the severe damage done to banks' balance sheets by the recession, this is likely to remain the case for some time and will dampen the recovery, as meeting new orders puts increasing pressure on manufacturers' cashflow.

“This suggests that the government and Bank will need to move carefully in removing the current support for the economy.”

Belfast Telegraph

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