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September 19, 2009

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Net lending declines to record low in Britain

NET lending to businesses and for home mortgages slumped to record lows in July and may have dropped further in August, the Bank of England said yesterday, suggesting economic recovery will be slow as credit activity remains weak.

The figures were echoed by a separate report by the Council of Mortgage Lenders, which said gross mortgage lending dropped 13 percent in August compared to July.

The Bank of England said net lending to businesses dropped in July to the lowest level since the record series began in 1998, while net mortgage lending was negative for the first time since those records began in 1993.

Consumers paid off more debt than they borrowed during the months, and lenders expected arrears on consumer loans to increase along with rising unemployment in coming months, it added.

"Lenders have yet to detect any significant increase in demand for new lending (to businesses) over and above the refinancing of existing facilities," the bank said in its monthly Trends in Lending report.

It said some companies were using rights issues rather than borrowing to raise capital.

"Market intelligence suggests that companies have created this headroom to enable them to respond quickly to any future investment opportunities without having to negotiate new loan facilities," the report said.

The bank said there had been no increase in mortgage lending to buyers who had less than 10 percent to deposit.

"The major UK lenders remained cautious about prospects for house prices and unemployment, and with specialist mortgage lenders remaining absent from the market, they did not expect any significant reductions in spreads in the near term," the report said.

The Council of Mortgage Lenders said a seasonal fall in lending was expected.

"The likelihood of a significant pick-up in lending remains weak, but the prospects for wholesale funding markets are improving," said CML economist Paul Samter.


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