ECONOMIC RECOVERY STALLED BY LOAN COSTS

Despite interest rates at historic lows, firms are finding it hard to get loans and many are suffering from higher borrowing costs, said the industry body EEF.

Of the 564 firms that took part in a survey for the organisation, 47 per cent noted they had seen an increase in the cost of finance from banks and other lenders. That compares with 37 per cent in the first three months of the year and marks the highest level since the survey was first conducted in 2007.

Only 7 per cent of firms enjoyed a fall in the cost of borrowing, down from 10 per cent in the second quarter.

A third of companies saw a reduction in the availability of new lines of borrowing, down from 49 per cent in the first quarter, with small businesses worst affected.

Steve Radley, EEF director of policy, said: “Despite historically low levels of interest rates and significant intervention by the Government and the Bank of England, credit conditions remain very tight for most manufacturers.

“Given the severe damage done to banks’ balance sheets by the recession, this is likely to remain the case for some time and will dampen the recovery as meeting new orders puts increasing pressure on manufacturers’ cash flow.”