Cost of credit

The latest survey by the EEF suggests that UK manufacturers are seeing the cost of borrowing rise despite easing credit conditions.


According to the survey, 45 per cent of companies experienced a significant to moderate increase in the cost of finance in the past two months, a rise of more than 37 per cent in the first quarter.


During the same period, firms that saw a decline in the availability of new avenues of borrowing fell from 49 per cent to 42 per cent.


Around 39 per cent of companies reported an increase in the fees on existing borrowing, an increase of 27 per cent from 2008.


In addition, the survey revealed difficulties in gaining credit insurance, with around 70 per cent of companies saying they had access to credit insurance either withdrawn or reduced in the past two months.


The manufacturers’ organisation said that the results highlight the importance of the Bank of England continuing its quantitative-easing programme to stimulate economic recovery.


Steve Radley, EEF chief economist, said: ‘Despite interest rates falling to a historically low level and the efforts to free credit markets so far, manufacturers are seeing few benefits.


‘It is important that the bank continues with its quantitative-easing programme to prevent higher borrowing costs weakening the recovery we hope to see later in the year.


‘Credit insurance is a major issue for many manufacturers.


‘The government will need to keep a very close eye on whether its top-up scheme is working and take action if the number of firms reporting problems does not go down.’


Echoing the EEF’s sentiments, the International Air Transport Association (IATA) has highlighted the importance of freeing up credit to stimulate growth in the aerospace industry.


Speaking at IATA’s annual general meeting, director general Giovanni Bisignani said: ‘Banks are still not able to finance business.


‘$1tn (£628bn) is still needed to re-capitalise.


‘Our customers don’t have confidence, they need to reduce debt and that means less cash to spend.’