June 18, 2010 / 8:49 AM / 10 years ago

Mortgage approvals up

LONDON (Reuters) - Lending to firms contracted at a slower pace in April and major banks approved more mortgages in May, according to figures from the Bank of England that suggested credit conditions are easing.

However, the picture was clouded by weak money supply growth and reports from lenders that demand for credit from businesses remained subdued.

The BoE’s ‘Trends in Lending’ report showed Britain’s six biggest lenders — Santander, Barclays, HSBC, Lloyds Banking Group, Nationwide and RBS — approved 51,000 mortgages for house purchase in May, up from 48,000 in April and matching March’s tally which was the highest this year.

“The rise in mortgage approvals is encouraging and shows that the housing market has shaken off the period of weakness earlier this year,” said Philip Shaw, an economist at Investec.

Total M4 money supply was almost unchanged in May, pushing down the year-on-year growth rate to 2.8 percent, its joint lowest since records began in 1983.

However, analysts noted that the headline rate could be misleading and the breakdown, due to be published on June 29, would shed more light.

“The headline money supply figures were weak but the aggregate figure doesn’t tell us very much,” said Shaw.

The BoE’s report showed the total stock of loans to British businesses dropped by 0.4 billion pounds in April after a downwardly revised fall of 3.9 billion pounds in March.

In percentage terms that translated into a fall of 8.5 percent on the year, less than the previous month’s record drop of 9.4 percent.

Loan terms for larger companies eased during May, reflecting increased competition, but there was no improvement in terms for small companies.

“Contacts of the Bank’s network of agents continued to report a gradual easing of credit conditions, though conditions facing smaller businesses were said to remain tighter than for their larger counterparts,” the BoE said.

The central bank has highlighted weak lending as a major potential brake on a sustainable recovery.

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