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Bank of England survey shows corporate lending set to fall over next quarter

Bank of England figures showed corporate lending decreased in the fourth quarter of 2019 and is set to decrease further in the first three months of 2020.

In the quarter, banks and building societies questioned on the overall availability of credit to the corporate sector reported a net balance of -9.2%, calculated by weighting together the responses of the financial firms.

Availability of credit for both medium and large businesses was reported to have decreased but it remained unchanged for small businesses.

Corporate lending was expected to suffer in the first quarter of this year with lenders reporting a balance of -7.6% for the period.

When asked which factors contributed to changes in credit availability, respondents cited a deteriorating economic outlook as the primary factor though there was also an increase in sector-specific risks.

The survey was conducted between Nov. 25 and Dec. 20 last year when uncertainty stemming from the debate over Brexit was at its height. Following the general election on Dec. 12 and the election of Prime Minister Boris Johnson's government, the U.K. is now definitely leaving the EU on Jan. 31, providing more certainty for business and the expectation of the release of pent-up demand after businesses have held back on investment till confusion over Brexit cleared.

The main factors contributing to changes in demand for lending were a fall in mergers and acquisitions activity in the quarter, said respondents, as well as a fall in demand for lending for capital investing with both factors expected to be significant in the first quarter of this year, too.

The survey also showed that the tighter supply of credit for medium and large businesses led to wider spreads on loans in the fourth quarter of last year, with spreads for these firms set to widen still further in the first quarter of this year.

The Bank of England's survey also showed secured lending to households, mortgages, increased in the fourth quarter of 2019 but is expected to decrease in the first quarter of this year.

The increase in mortgage lending in the fourth quarter was driven, said respondents, by market share objectives as leading banks fought each other to gain customers.

A balance of survey respondents, -11.2%, expected the economic outlook for the first quarter of this year to deteriorate, while market share objectives are expected to lessen.

The survey also showed that while lending criteria remained unchanged in the fourth quarter of last year, it is expected to tighten in the coming quarter.

Finally, the supply of unsecured credit decreased slightly in the final quarter as the economic outlook weakened, and it is expected to remain unchanged this quarter.