In October 2007 the borrowing binge peaked. That month lending to small and medium sized UK companies grew by a heady 33.5%. UK business took out an additional £17.4 billion of loans in just one month. In July of that year banks’ syndicated gross loans less maturities peaked at £23.9 billion in the month.
Labour’s boom bust monetary policy then created the opposite horror. By July 2009 bank lending to small and medium sized companies was contracting at a rate of 14.8%. Over the year to May 2010 bank lending to business fell by £46 billion, whilst syndicated gross loans from banks fell by £51 billion. Between January 2009 and May 2010, loans to UK business contracted by £60 billion.
The result is a private sector cut back substantially, and now much less in debt than before. If we want a decent private sector led recovery – and that seems to be the consensus wish- we need some sensible growth of business credit. In April bank lending to SMEs was still falling. Overall lending to business is still contracting. There is no great banking or market enthusiaism to raise the large sums needed for private infrastructure and the growth projects we need.
The government is going to have to change the banks, by working on the ones it owns, and changing the regulatory message to the rest. More prudence was needed after the excesses of 2007. In today’s climate, when banks have better balance sheets and business is less geared, it’s time for a change of tack to get that recovery we all want.