The Bank of England released its quarterly credit condition survey results today (covering Q4 2016) and indications are mixed, with credit availability about the same as the previous quarter, household credit usage up but generally soft demand for corporate borrowing. The main concern was the lack of demand in the small-to-medium enterprise (SME) sector, a typically key indicator of potential economic growth.
Overall demand for corporate lending from small and medium-sized companies fell significantly in the fourth quarter. Demand for small companies is expected to decline further this quarter, but medium-term companies expect a small increase.
The good news here is that after a large decline in loan demand by large companies in Q3 2016, at least that sector remained unchanged in Q4. Smaller companies of course might seem to be naturally hesitant to expand business investment in the wake of Brexit, and could be waiting to determine whether indeed the actual exit will take place. This is reflected in the lack of capital investment.
The main concerns will again focus on the corporate sector and the risk of further weakness in investment, which will undermine the longer-term growth outlook unless companies are able to generate higher rates of cash flow, which reduces the need for borrowing to fund expansion.
Overview by Steve Murphy, Director, Commercial and Enterprise Advisory Service at Mercator Advisory Group
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