UK firms turning away from credit - survey

LONDON - British manufacturers are increasingly turning away from external funding to grow their businesses, a survey found, despite tentative signs that the cost of credit is easing.

Nearly 52 percent of companies polled by manufacturers' organisation EEF for its quarterly Credit Conditions Survey said they had no need to borrow to support their business, a record high.

Industry turning its back on sources of credit would be bad news for the government and the Bank of England, which are trying to get lending going with measures such as the Funding for Lending scheme (FLS) that makes it cheaper for banks to lend to small businesses.

Some improvement of such lending may be starting to emerge in the second quarter, said EEF economist Andrew Johnson.

The survey, published on Sunday, found the balance of companies who said the cost of credit was rising rather than falling sank to 2 percent, the lowest since the survey began in 2007, although the improvement was largely concentrated among big businesses.

"The counterpoint to this cautious optimism, however, is that there is continued growth in the number of companies that appear to no longer see external finance as an important funding source to support their business," said Johnson.

"This is a result mirrored by other surveys and will surely slow investment."

Johnson said that some manufacturers seemed to be relying on internal funds to support investment because they found many of the criteria that banks set for fresh borrowing unreasonable.

EEF called on the government to consider ways of doing more to stimulate banking competition for smaller companies, such as by making it easier for firms to switch banks or lowering the set-up costs for new banks.

Figures earlier this week showed that banks were drawing down funds from the FLS but cutting net lending as they run down massive pre-credit crunch loans.

EEF, which represents over 6,000 British engineering, manufacturing and technology firms of varying sizes, surveyed 210 companies between May 1 and May 22.