No 139: Lending

UK BANKS have been announcing their yearly profits over the last few weeks, and they are all making profit again, including those who are partly owned by the British taxpayers.

For example

(See http://www.bbc.co.uk/news/business-10889684 and http://www.bbc.co.uk/news/business-10878694 for more.)

However, as the diagram below shows, this doesn't seem to have been accompanied by more lending to businesses:

Economists argue that lending to businesses is essential for the recovery stage of the economic cycle. For a while when climbing out of recession, a lot of businesses do not need new capital goods since those they already have are likely to have extra capacity that can be used.

But once consumer demand picks up beyond a certain stage, businesses must first purchase extra capital goods in order to produce more goods for consumers.

The diagram above shows this is not happening.

Many people think this is because the banks are refusing to make loans available to businesses. However, the banks are arguing that they are offering funds, and that the lack of business borrowing isn't their fault.

Can anyone guess who the banks are blaming for the lack of business borrowing in the UK economy? (I'll try and give one of my amazing prizes to whoever has the best answer......)

(Here is the Economist article I took the diagram from http://www.economist.com/node/16693862)