Tight credit conditions continue to threaten manufacturers

BRITAIN’S manufacturers have warned that tight credit conditions are likely to weaken the economy’s recovery, according to a new report. 

The survey published by manufacturers’ organisation EEFalso pointed to only a small reduction in the number of manufacturers reporting more difficult access to credit despite interest rates falling to a historically low level and efforts to free up the liquidity in the banking system.

Nearly half of respondents (47%) reported an increase in the cost of finance from banks and other providers in the past two months compared with 37% in the first quarter.

Only 7% of firms saw a fall in the cost of borrowing – down from 10% in the secon dquarter.

A third of companies saw a reduction in the availability of new lines of borrowing, down from 42% in the second quarter and 49% in the first quarter.

Small firms (36%) were much more likely than larger firms (17%) to report a reduction in the availability of new lines of borrowing.

Steve Radley, EEF director of policy, said:M “Despite historically low levels of interest rates and significant intervention by the Government and the Bank of England, credit conditions remain very tight for most manufacturers.

“Given the severe damage done to banks’ balance sheets by the recession, this is likely to remain the case for some time and will dampen the recovery as meeting new orders puts increasing pressure on manufacturers’ cashflow.

He added: “This suggests that the Government and the Bank will need to move very carefully in removing the current levels of support for the economy.”