Capital Economics calls for increase in bank lending

Lending from private banks and other institutions is likely to prove a key driver of economic recovery from the current downturn, Capital Economics said today.

Vicky Redwood, economist at the organisation, suggested that GDP growth would remain ’sluggish’ following the recession, if credit flows do not improve from their current level.

The comments follow the release of M4 data for the year to June from the Bank of England last week.

This report showed that the household’s sectors holdings of M4 - a key measure of the amount of cash flowing around the economy - rose by £3.5 billion over June.

While this still represents a net rise, the rate of increase is significantly lower than in previous months - and brings the annual rate of growth down to £3 billion.

A separate report from the Bank also showed that total net lending to individuals fell from £500 million in May to £400 million in June.

Ms Redwood said: ’[The figures are] worrying in terms of how quickly we can expect the economic recovery.

’Unless lending growth starts to pick up I think recovery in the wider economy will certainly be very sluggish and drawn out.’ADNFCR-2318-ID-19293591-ADNFCR