ECONOMY ROUND-UP – WHAT’S UP, WHAT’S DOWN

FLS LENDING DOWN

Figures released by the Bank of England show net lending under the Funding for Lending Scheme (FLS) slumped by £810 million in the final quarter of last year. This followed falls in the previous three quarters and took the total decline over 2014 to just under £2 billion.

The FLS, launched in 2012, was supposed to channel cheap funding from the Bank of England to commercial banks on the condition that they pass on the money to borrowers. At the time George Osborne described small firms as the “lifeblood of our economy”. But the Bank’s data shows that despite participating lenders – which include the taxpayer-backed Lloyds and Royal Bank of Scotland – drawing down £15.6 billion in cheap loans in 2014, they collectively carried on contracting their overall corporate lending books.

Tracy Ewen, managing director of IGF Invoice Finance, says the scheme has failed to deliver for small firms. “The news that bank lending to small businesses has fallen by £2bn is very concerning, but this drop is not simply down to the reluctance of banks to provide funding. In reality, there is actually a strong appetite to lend within the credit industry. The bigger issue is that the recession years have left many SMEs wary of accumulating debt.” Small businesses are increasingly turning to alternative sources for their funding, such as P2P lending, crowdsourcing and products such as invoice finance that can help free up their cash flow.

MANUFACTURING UP

Manufacturing looks to be enjoying decent first quarter as the February Purchasing Managers’ Report out this week shows a pick-up to 54.1 in February, the highest since July 2014. High. Evidence is increasingly pointing to the manufacturing sector regaining momentum early on in 2015 after faltering in the latter months of 2014. The manufacturing purchasing managers’ survey follows an improved CBI industrial trends survey. This boosts hopes that overall GDP growth will pick up to 0.7 per cent in the first quarter of 2015 after moderating to 0.5% quarter-on-quarter in the fourth quarter of 2014 .

MORTGAGE LENDING UP… 

Bank of England reports mortgage approvals rose modestly for second month running in January. They edged up to a four-month high of 60,786 in January from 60,349 in December and a 17-month low of 58,989 in November. Mortgage approvals had previously retreated for five successive months to November’s low from 59,386 in October and 66,091 in June. The gradual recovery will lend support to the view that the weakening in housing market activity has bottomed out.

… BUT HOUSE PRICES EDGING DOWN

Nationwide reports house prices edged down 0.1 per cent in February trimming year-on-year gain to 17-month low of 5.7 per cent. This followed increases of just 0.3 per cent in January and 0.2 per cent in December. There has been an appreciable moderation in housing market activity from the peak levels seen at the start of 2014.

The year-on-year increase in house prices moderated to a 17-month low of 5.7% in February from 6.8% in January, 7.2% in December, 8.5% in November and a peak of 11.8% in June (the highest since January 2005). House prices rose 0.8% in the three months to February, which was the equal smallest three-month rise since mid-2013.  It was down from three-month/three-month increases of 0.9% in January, 1.0% in December, 1.6% in September, 2.7% in June and a peak of 3.1% in February 2014.

BRENT CRUDE EDGES LOWER

North Sea Brent crude prices edged back towards $60 a barrel yesterday after a marked rally in the past ten days.  Last night former Prime Minister Gordon Brown said under threat North Sea oil fields could be part owned by the UK government.

He suggested this could be the solution for those fields under threat of being mothballed. But the SNP’s Stewart Hosie accused Mr Brown of failing to act during his time as Chancellor. He called on Brown to back the Scottish government’s action plan for the industry, which included cuts in North Sea oil production taxes and new incentives for exploration.

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