Published: Thu, 02 Apr 2009 11:13:35 +0200

Loans to the UK Corporate Sector Rise Unexpectedly, All Other Lending Falls

(CEP News) - While credit demand and supply in the UK may have declined in the first three months of 2009, financial institutions in the UK noted an unexpected increase in loans made to the corporate sector.

According to the Bank of England's credit conditions survey, the availability and demand of credit to households and small businesses declined in Q1, but banks saw a modest net increase in lending to the corporate sector compared to the fourth quarter of 2009.

However, the positive development is merely a blip on the radar given developments in the financial markets, which have hit the UK's banking system hard. Worsening economic conditions in the region are expected to put upward pressure on default rates, which "had risen over the past three months, and were expected to rise further," said the BOE.

As a consequence, financial institutions in the region reported tighter lending conditions across the board, charging higher premiums on loans.

Going forward, some sectors are expected to see ongoing credit reduction, particularly in the mortgage and small business sector, while large and corporate institutions are expected to show some recovery, said the BOE.

By Erik Kevin Franco, efranco@economicnews.ca, edited by Stephen Huebl, shuebl@economicnews.ca