Credit conditions ease but demand for credit remains subdued.

A report released by the Bank of England showed that though net lending to UK businesses remained negative in April, the stock of lending to small and medium-sized enterprises had risen in recent months.

Official data covering lending by all UK-resident banks and building societies indicated that the stock of lending to businesses contracted by only £0.4 billion in April, significantly less than the £3.9 billion reduction in March.


The three-monthly rate of contraction eased somewhat, though data from the major UK lenders indicated that their net lending weakened in May. This could partially have been due to uncertainty over fiscal sustainability in the European markets.

Indicators of corporate distress, such as the write-off rate, also eased slightly in Q1, 2010.

In some contrast to the continued contraction of the stock of lending to businesses in total, the stock of lending to small and medium-sized enterprises (SMEs) increased slightly over recent months , according to survey data from the Department for Business, Innovation and Skills (BIS) covering four major UK banking groups.

That difference could partly reflect that SMEs have less access to alternative sources of finance, such as from the capital markets, than larger companies. In recent discussions, most major UK lenders reported little evidence of a significant pickup in loan demand from smaller companies, claiming that overall demand for credit also remained subdued. .

Total net consumer credit flows turned slightly negative in April, with the stock of lending little changed on a year earlier. In recent discussions, the major UK lenders reported underlying demand and availability for consumer credit were unchanged.

Effective interest rates on consumer credit were slightly higher than the previous month. The major UK lenders reported that recent outturns for arrears and write-offs were lower than expected, though the write-off rate on consumer credit remained high in Q1, 2010.