Banks up lending in line with government Merlin targets

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Media captionAndrew Cave from the Federation of Small Businesses says companies 'are still strangled'

The UK's biggest five banks increased their lending to UK companies in the past three months, bringing them back on track to hit government targets.

New loans in the second quarter were £53bn, the Bank of England said, up from £47.3bn in the previous quarter.

Lending to small and medium-sized companies also rose, by 22% to £20.5bn.

The big five promised the government to lend at least £190bn in 2011 to boost the economic recovery as part of the Project Merlin deal agreed in February.

'Strangling and starving'

The banks appear to have responded to criticism from Business Secretary Vince Cable, who said they needed to do better after the first-quarter lending data fell short of expectations.

The second-quarter figures mean that the five lenders were 53% of the way towards meeting their annual target six months into the year.

However, the banks had only provided 49% of the £76bn promised to small and medium-sized borrowers.

"We are still strangling and starving businesses in the UK of the funding they need to grow the economy," said Andrew Cave of the Federation of Small Businesses, who told the BBC that the increase in lending was nonetheless encouraging.

"There are plenty of new entrants that want to come into the market space here and lend to small businesses," he added, saying they wanted government reforms to open up the lending market to more competition.

The official data may belie what is still a very tight borrowing environment, according to David Birne, insolvency partner at chartered accountants HW Fisher & Company.

"Our experience on the front line is that targets or no targets, simply not enough lending is going on," he said.

"Nobody expects the banks to lend to the unbankable, but in many cases they are even turning their backs on perfectly viable businesses."

The data includes the renewal of existing loans, and does not deduct the value of existing credit that has expired and not been renewed.

Separate "Trends in Lending" data, also provided by the Bank of England, suggests that net lending by banks in the UK - which adjusts for these two factors - is still contracting.

In the second quarter of the year, net lending to UK businesses fell by £4.4bn, following a £2.8bn decline in the previous three months.

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