Credit conditions stabilising: survey

With signs that an economic recovery is now underway, manufacturers' need certainty and confidence that the banking system will be able to provide the finance they need to meet growing demand, according to the manufacturers' organization EEF which carried out the survey. According to the survey of over 300 companies, demand for finance for working capital has been relatively muted across manufacturing but, in the majority of cases, needs have been met. Looking to the next two months, more companies are expecting finance requirements to grow. The survey also shows that the majority of companies have reported no change in the cost of credit over the past two months compared with the previous quarter and the proportion that has seen a rise in the cost of new lines of borrowing is significantly lower than six months ago. Key results include: • The proportion of companies reporting an increase in the overall cost of finance from banks and other finance providers was unchanged at 32% in the past two months. This compares with a peak of 47% in 2009q3. • 40% of companies saw the cost of new borrowing rise in the past two months, down from 47% in the previous quarter. • Fewer companies (14%) reported in reduction in funds from their parent company in the past two months, down from a peak of 30% in 2009q2. • A quarter of companies sought finance for working capital in the past two months, 58% securing all they needed and 32% obtaining some of the finance they needed. • More companies expect their finance requirements to increase in the next two months, including many of those that have not sought finance for working capital so far this year. Commenting on the survey outcomes, EEF chief economist Lee Hopley (pictured) said: "Evidence that credit constraints have started to calm down will help build some confidence across the sector. But we are only at the early stages of a recovery and as demand for finance has been subdued the financial system has yet to be tested. The key question is whether the Banks will be there for manufacturers as a return to growth generates greater demand for finance."