Credit crunch shows signs of easing

12 April 2012

The credit crunch has showed signs of easing as banks and building societies said they planned to increase lending during the coming three months.

Lenders expect there to be a "small increase" in the amount of money made available to both individuals and businesses, following an improvement in the cost and availability of funds.

But the improvement in the supply of credit will be accompanied by a further tightening in lending criteria on both mortgages and business loans, according to the Bank of England's Credit Conditions Survey.

The report also confirmed there had been a decline in mortgage lending during the first quarter, although there was an unexpected rise in lending to the corporate sector.

The figures came as Nationwide reported a surprise 0.9% increase in house prices during March, further adding to the recent run of positive data on the property market.

But economists cautioned against reading too much into the increase, warning that although activity in the market may have bottomed out, any recovery was still likely to be a long way off.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The Bank of England survey encouragingly indicates that credit conditions may finally be beginning to improve.

"(It) suggests that the various policy measures undertaken by both the central bank and the Government to boost bank lending are starting to have a beneficial impact and it raises hopes that credit conditions will increasingly become less of a constraint on economic activity over the coming months."

The banks have been coming under increasing pressure from the Government to improve their lending levels, as it pumps hundreds of billions of pounds into supporting the sector.

Lloyds Banking Group and Royal Bank of Scotland have pledged to lend £14 billion and £25 billion respectively during the coming year as part of their participation in the Government's asset protection scheme. But even if lending does increase, it is unlikely to have a big impact on the property market unless banks also relax their lending criteria.

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