More firms seeing fall in cost of finance
By Melanie Defries Tuesday, 28 August 2012
The number of companies seeing an increase in the cost of credit has fallen to its lowest level since 2007, according to new research.
A survey of 218 companies by manufacturer’s organisation EEF found the balance of companies seeing an increase in the cost of credit had fallen to 11.2% in the second quarter of the year from 21.2% for the previous three months.
EEF chief economist Lee Hopley said the drop could be a sign that credit easing programmes such as the recently launched Funding for Lending scheme were having an impact, but added that it is "too early" to draw definitive conclusions.
She said: "It is a welcome sign that the stubbornly high number of companies seeing the overall cost of finance increase has fallen to the lowest level since the financial crisis.
"However, there are still more companies saying the cost of finance is going up rather than down. With the short-term demand outlook looking very challenging, we simply cannot afford to have factors that are at least partly in the UK’s control holding back desperately needed measures."
The EEF added that around half of companies surveyed said they were opting out of accessing external finance altogether.
It said this was supported by anecdotal evidence of firms holding on to cash to support their own working capital and investment.
Meanwhile, revised Office for National Statistics (ONS) figures for Q2 show that the UK economy did not contract as sharply as first feared.
The adjusted figures show the economy shrank by 0.5% in the three months to June, an improvement on initial estimates of a 0.7% contraction.
Manufacturing output was also revised to a 0.9% decrease, compared to initial estimates of a 1.5% drop. The sector contracted by 0.3% in the previous quarter.
Hopley said: "Whilst the revised estimate suggests the economic situation, particularly for manufacturing and construction, wasn’t quite as dire as first thought there are clearly some big question marks around where we go from here.
"Even if activity was displaced rather than lost, we’re still looking at an overall contraction for the economy this year."
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