The Bank of England (BOE) has unveiled encouraging figures for the final quarter of 2009 that show lending to businesses and households increased, indicating an easing of the effects of the credit crunch.
In the 2009 Q4 Credit Conditions Survey, the BOE said prospects for further improvements in lending in the first quarter of 2010 were strong, and that it expected the fall in availability of unsecured credit to stabilize.
The survey's introduction said: "A net balance of lenders reported that they had increased the availability of secured credit to households in the three months to early December 2009,driven in part by improvements in the economic outlook. A further slight increase in the
availability of secured credit was expected over the next three months.
"Unsecured credit availability to households had continued to fall, but was expected to
stabilize over the next three months.
"A net balance of lenders reported continued improvement in corporate credit availability
over the past three months, with a further increase expected in 2010 Q1." The survey said over the quarter there was increased demand for secured lending for house purchases, but demand for secured lending for remortgaging had fallen.
The BOE predicted demand was likely to be unchanged in the first quarter of 2010.
Household demand for unsecured credit had continued to fall over the past three months,
though demand was expected to rise in 2010 Q1, figures showed, and demand for credit by private non- financial corporations (PNFC) was weaker than anticipated, driven by reduced demand from larger firms. Demand from PNFCs was expected to rise over the next three months.
Howard Archer, chief UK and European economist at IHS Global Insight, told the Times
newspaper in London: "The survey at least boosts hopes that quantitative easing and other policy measures undertaken by both the central bank and the Government to boost bank lending are increasingly feeding through to have a beneficial impact, in tandem with the modestly improved economic situation and outlook."
In the early part of 2009 the BOE reduced interest rates to an historic low of 0.5 percent,
and has left them there for nine months to boost lending. In addition it has for the first time
used quantitative easing (QE). The BOE aims to boost lending through QE by buying assets,usually gilts, from financial institutions and hopes that money is then lent out. QE began as a 75 billion pound program but was further extended to 200 billion pounds in November. It is set to end in February.
The optimistic figures in the survey, are backed by other signs of either growth or a
slowing of decline in parts of the economy and by the Treasury.
Better-than-expected employment figures in November showed a growth in the number of jobs, a decline in the number of unemployment benefit claimants and a slowing in the rate of job losses.
Chancellor of the exchequer Alistair Darling forecast modest growth for 2009 Q4, and Office of National Statistics figures for 2009 Q3 showed a revision in GDP decline from 0.4 percent quarter on quarter to 0.2 percent.
Alongside the reported increase in credit availability for borrowers with loan to value
ratios above 75 percent, the BOE survey reported a net balance of lenders reported an increase in their maximum LTV ratios for the first time in over two years. Lenders expected a further increase in maximum LTV ratios over the next three months, which would be good news for first-time buyers.
The spread between the BOE rate of interest and financial institutions had narrowed, indicating a stabilizing of the financial system.
A survey from Nationwide, a leading mortgage lender, released at the end of 2009,showed the homes market had bounced back from the effects of the recession, and had posted a year-on-year increase in the average price of homes of 5.9 percent.
Commenting on this growth, Martin Gahbauer, Nationwide's chief economist, said in a statement before the Credit Survey figures were released: "This year's recovery has to some extent been driven by transitory factors and there are reasons to believe that it will lose momentum over the coming year.
"At the same time, there is no obvious catalyst on the near- term horizon that would
trigger significant renewed falls in prices, such as a sharp spike in interest rates or a further
pronounced tightening of credit conditions from present levels."
The BOE survey was conducted between November 16 and December 4, before the
chancellor's Pre-Budget Report on December 9.
The survey covers secured and unsecured lending to households and small businesses;
and lending to non-financial corporations, and to non-bank financial firms.