Credit conditions likely to dampen recovery say manufacturers

The survey, from the manufacturers' organisation EEF, also pointed to only a small reduction in the number of manufacturers reporting more difficult access to credit. This is despite interest rates falling to a historically low level and efforts to free up the liquidity in the banking system. The survey showed 47% of firms reporting an increase in the cost of finance from banks and other finance providers in the past two months – the highest figure since this survey was first conducted at the end of 2007. Only 7% of firms saw a fall in the cost of borrowing and manufacturers also reported higher costs for new lines of borrowing, fees and rates. A third of companies saw a reduction in the availability of new lines of borrowing. Small firms (36%) were much more likely than larger firms (17%) to report a reduction in the availability of new lines of borrowing. EEF director of policy Steve Radley (pictured), said that despite historically low levels of interest rates and significant intervention by the government and the Bank of England, credit conditions remained very tight for most manufacturers. He went on: "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' cashflow. This suggests that the government and the Bank will need to move very carefully in removing the current levels of support for the economy."