Business loan write-offs to hit highest since 1990s

The Ernst & Young ITEM Club said lending to businesses would not return to pre-crisis levels until 2016, exacerbating the funding squeeze faced by small and medium-sized companies. It also forecast a 7.6 per cent fall in consumer credit this year, which would be the sharpest on record.

The Telegraph reports that ITEM’s report on the outlook for financial services predicted write-offs will increase to 1.9 per cent of business loans in 2012 from 1.6 per cent in 2011, as a weak economy triggers company failures.

“Although 1.9 per cent doesn’t sound big, this will be the highest annual rate of write-offs since the mid-90s and the more loans banks have to write off the less money they will have to lend,” said Neil Blake of ITEM.

“Consumer-led sectors such as retail are likely to be hit disproportionately hard as discretionary household spending is cut back amidst difficult labour-market conditions, especially in regions hit hard by government spending cuts.”

Official figures published last week showed Britain fell back into recession in the first quarter after the economy shrank by 0.2 per cent, marking the first double-dip recession since 1975. However, economists at Goldman Sachs said other indicators suggest the British economy actually grew by 0.3 per cent between January and March.

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