UK business recovery at risk if banks don’t lend
With banks failing to lend to businesses, Britain will move slowly away from an economic recovery, Business Minister Vince Cable said.
Britain’s recovery has been relatively slow since exiting the recession in the last quarter of 2009, growing just 3 per cent in the first three months of the year. Bank lending – particularly to the smaller firms - has remained subdued making business recovery a last priority.
“We could have a second credit crunch if we don’t get credit flowing, there is a real danger that growth in the economy could be undermined,” Cable said in an interview with the Independent on Sunday Newspaper.
“It is what I hear most from the businessmen and women I speak to, that the flow of credit and lending to business is still weak. Demand is already depressed, and the danger is that the lack of lending could depress it still further.”
Cable said that the government is working on new ways to get credit flowing but it must also find ways to redress the bias towards taking on debt and try to get more equity funding into business.
“We are still identifying new measures but it is important because the effects of quantitative easing will soon be wearing off,” he said.
The Government is taking steps to make Britain more competitive, such as lowering corporation tax and reducing bureaucracy to get Britain out of the gloomy situation. Cable sees that Britain needs to find a way to balance its economy, boosting high-tech manufacturing industry and reducing its reliance on the financial sector.
Pumping more money into the economy in order to get it moving again would create the risk of encouraging another housing bubble and would ‘only lead to another disaster.’
“What we are doing is tricky; we must encourage growth and re-balance the economy in a healthy way and geographically. It is going to be a difficult trick to pull off.”