Lending to small UK firms hits record in June, mortgage approvals slow

LONDON Mon Jul 29, 2013 9:53am BST

A terraced row of houses is pictured in front of a residential tower block in London January 16, 2009. REUTERS/Luke MacGregor

A terraced row of houses is pictured in front of a residential tower block in London January 16, 2009.

Credit: Reuters/Luke MacGregor

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LONDON (Reuters) - Lending to small and medium-sized British firms grew at its fastest pace on record in June, while mortgage approvals for house purchases fell, Bank of England data showed on Monday.

Lending to non-financial businesses shrank by a net 1.3 billion pounds. However, within that, lending to smaller firms rose by 238 million pounds, compared with the average monthly fall of 500 million pounds over the previous six months.

It was also the largest increase since records began in April 2011, although on the yearly basis it was still down more than 3 percent.

The last time lending to SMEs rose was in February.

Mortgage approvals numbered 57,667 in June, down from 58,071 in May, falling well short of analysts' forecasts in a Reuters poll for a reading of 59,500.

The government has sought to help home buyers via its Help-to-Buy scheme, which kicked off in April, and the year-old Funding for Lending scheme run jointly with the central bank.

The FLS also targets business lending by offering banks cheap finance if they lend on to firms and, since its revamp in April, gives banks greater incentives to lend to small and medium-sized businesses.

Government-commissioned research showed earlier on Monday that Britain's risk-wary banks have been reluctant to lend to small firms or pass on cuts in interest rates, pointing to a lack of credit supply rather than demand from businesses as the main brake on deals.

Critics of the government's support for housing have warned it could push up prices without encouraging more building. Britain's business minister Vince Cable said on Sunday he was worried about the risk of a new housing bubble.

In contrast to the central bank's data, the British Bankers' Association reported last week a rise in mortgage approvals in June to their highest level since January 2012.

The BoE said on Monday that consumer credit rose by a net 489 million pounds in June, compared with an increase of 781 million pounds in May. That was the smallest rise since January.

The bank's preferred gauge of money supply, M4 excluding intermediate other financial corporations, rose 0.3 percent, taking the annual growth rate to 5.0 percent.

(Reporting by Olesya Dmitracova and William Schomberg)

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