Credit crunch, what crunch?     While the City moans, the rest of the British economy seems to be doing all right.        This has led some to claims that the banks have become too pre-occupied with their own problems and can’t see that beyond their own narrow existence, things are pretty good.

Well, there is one snag with that analysis.  There are time lags involved. Mainstream business will feel the heat – just give it time.

The latest Financial Services Survey from the CBI and PricewaterhouseCoopers LLP revealed that lending to industrial and commercial companies continued to increase in January.

But it’s the futures where the prognosis is not so good.  “A balance of 8 per cent expect lending to these customers to contract in the next three months,” the survey found.

Furthermore, 90 per cent of financial services firms questioned believe the credit squeeze will last longer than six months, compared with 70 per cent last quarter, despite firms being a further three months into its effects. Nearly all businesses (97 per cent) believe that credit conditions will get worse in the next six months – 35 per cent  said it was a ‘high’ likelihood and 62 per cent saying it was ‘medium’.

The growing impact of the credit squeeze is also evident in the proportion of firms saying their ability to raise funds will be a constraint on business growth in the coming 12 months. Forty per cent of firms saying this would be the case, up from 24 per cent last quarter, is the second-consecutive record figure reported.

More to the point, a net 25 per cent of respondents said they had cut jobs over the past three months, which is the highest rate since March 2003, and against expectations that numbers employed would increase marginally.

It seems likely that US banks operating in the UK are especially likely to shed jobs, which will clearly have a knock-on effect elsewhere.

Ian McCafferty, CBI Chief Economic Adviser, said: “It is clear that the credit crunch has worsened over the first three months of this year. The interbank markets have become more gummed up, with banks even more unwilling to lend, and credit spreads have widened.

“While liquidity injections and interest rate cuts by the Bank of England will help shore up the system, neither will solve the fundamental problem of restoring trust within the markets. Credit markets are unlikely to return to anything like normality for some time to come.

“And even when they do, we will not see a return to the very favourable lending conditions that existed before August. We can expect further tough times in the financial sector, as this feeds through into the wider economy, will inevitably be felt through slower economic growth this year and next.”
 

© Investment & Business News 2013