U.K. Companies Get New Loans More Easily, CBI Survey Shows

By Brian Swint

Aug. 10 (Bloomberg) -- U.K. companies are having an easier time getting access to loans in a sign the credit crunch is abating, the Confederation of British Industry said.

A net 18 percent in a survey of 73 firms said credit availability improved in the past three months, compared with a net 20 percent reporting a deterioration in May, Britain’s biggest business lobby said today in London. The CBI questioned companies between July 15 and July 24.

The Bank of England last week pledged to increase the amount of money in the economy by an additional 50 billion pounds ($84 billion) to encourage credit growth and pull the economy out of recession. Governor Mervyn King said in a letter to the government that the need for banks to repair their balance sheets is likely to restrict lending.

“Credit availability has been getting more difficult for many months, so today’s results are positive news,” Richard Lambert, director-general at the CBI, said in a statement. “It is unclear when bank lending will be flowing freely again, but for many firms credit conditions are at least moving in the right direction.”

While loans may be easier to get, they are also more expensive, the report showed. Half of the companies surveyed said the cost of new credit had risen in the quarter, with a fifth reporting an increase of more than 1 percentage point.

The improvement in availability of credit was reported more by large companies with at least 5,000 employees, the report said. Smaller firms on balance said the supply of existing credit had declined.

‘Challenging’ Conditions

“Smaller and medium-sized businesses are still facing challenging credit conditions and have fewer funding options open to them,” Lambert, a former Bank of England policy maker, said in the statement.

Royal Bank of Scotland Group Plc, the biggest bank controlled by the U.K. government, last week reported a first-half loss and said results will be poor for two years. Chief Executive Officer Stephen Hester has pledged to reduce loans and sell assets overseas to reduce a balance sheet that climbed to 2.2 trillion pounds under predecessor Fred Goodwin.

“In the United Kingdom, the recession appears to have been deeper than previously thought,” the Bank of England said in a statement with its decision on Aug. 6. King will present the bank’s new forecasts for the economy and inflation on Aug. 12 at a press conference in London.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.