Lending to firms picks up, mortgage approvals drop

LONDON (Reuters) - Lending to UK firms rose in August for the first time since February, data from the Bank of England showed on Thursday, but its "Trends in Lending" report suggested the improvement would not be sustained.

The central bank's monthly report also provided further evidence of a weakening in the housing market, with mortgage approvals made by major UK lenders falling for a fourth month running in September to their lowest since April 2009.

Policymakers remain concerned that a lack of lending could derail Britain's recovery at a time when the government is relying on the private sector to expand to fill the space left by a shrinking state sector.

Chancellor George Osborne announced more than 80 billion pounds of spending cuts on Wednesday as part of a drive to slash a budget deficit running at 11 percent of national income.

The net monthly flow of lending to UK businesses rose by 0.3 billion pounds in August after July's 2.5 billion pound drop. That allowed the annual rate of decline to ease to 5.4 percent, its least negative reading since August 2009.

However, preliminary data for September suggested the improvement had not been sustained.

"In recent discussions, some major lenders reported that businesses were continuing to pay down debt as they reduced leverage and improved working capital management," the BoE report said.

"Data from the major UK lenders indicated that net lending to businesses weakened in September."

Approvals for home purchase loans made by Britain's six biggest lenders -- Santander, Barclays, HSBC, Lloyds, Nationwide and RBS -- dropped to 44,000 from 45,000, continuing the steady decline that has characterised much of the past year. Mortgage approvals peaked at 61,000 last November on the current "major UK lenders" series which began in January 2009.

(Reporting by Christina Fincher and Anna Yukhananov; editing by Patrick Graham)