A mixed bag from the Bank of England today. HSBC, Santander, Barclays, Lloyds TSB and RBS issued £214.9bn in new loans last year, thrashing their government commitment of £190bn. But the silver lining housed a rather large cloud: most of this cash went to big business rather than the struggling SME sector.
Just £74.9bn, in fact, was lent to smaller firms, over a billion less than the £76bn target. So, small businesses are still struggling to access credit, despite the highfalutin promises of the Project Merlin initiative.
But this is not a group failure, by all accounts. Let’s look at the numbers. As part of its Project Merlin promise, Barclays lent £14.7bn last year – beating its £14bn target. Part-nationalised Lloyds doled out £12.5bn, nearly a billion more than the £11.7bn set by government. Santander issued loans of £4.3bn, £300m more than its target. HSBC hit its goal of £11.7bn bang on the nose. But RBS, alas, was less successful. It lent just £31.7bn, a whopping £3bn less than promised.
The revelation has sparked outrage among the small business community: ‘The Merlin targets have failed,’ Andrew Cave, spokesman for the Federation of Small Businesses, bluntly told the BBC. ‘Talking to our members, 30% of them say they missed a growth opportunity because they weren't able to access finance at the right times, so there is still a problem.’
Phil McCabe, from the Forum of Private Business, says: ‘Despite the Project Merlin targets, banks have consistently failed substantially to increase lending to the small firms that need it most. Lending costs remain punishingly high.’
The news that our SMEs are being starved of much-needed cash follows the CBI’s revised growth predictions, released last night. The economy will not grow 1.2% as predicted, said the business lobby, but 0.9%. Quarter-on-quarter GDP growth will teeter at the 0.2% mark in the first half of this year, rising to 0.6% in Q3 and 0.5% in Q4. It won’t be an official recession, adds the CBI, no doubt hoping to avoid a full-scale panic, but the UK economy will be extremely fragile. Much depends on further shocks from the eurozone, added the report.
It’s clear that UK SMEs are caught in a vicious circle. The uncertainly surrounding Blighty’s financial future (fuelled by eurozone turmoil) may have made the banks less keen to lend but it’s also made small businesses less keen to borrow. Without money being invested, the arteries of the UK economy are becoming increasingly clogged. As enterprise digs in and stops growing, headlines remain grim and confidence stays low. And so the banks refuse to lend…The cycle could go on indefinitely unless something is done to break the pattern.
The question is: What?