Bank lending to businesses set to improve in UK

Bank lending to businesses is set to rise for the first time in four years with risk appetite picking up, which comes as a potential lifeline to smaller firms and the UK's growth prospects, according to experts.

Although lending was down 5 per cent last year, to the lowest level since 2006, the outlook over the next two years, according to accountancy Ernst & Young seems to be brighter.

According to the firm's projections bank lending would grow by 3.5 per cent to £440 billion this year, and 8.5 per cent to £477 billion in 2014.

Andy Baldwin, head of financial services at Ernst & Young, said in recent months much of the media and political attention had focused around banking competition on the high street, and even though the talk was all about the continuing problems in the sector, behind the scenes banking fundamentals had quietly improved, and banks now were in a better position to be able to provide funds to the wider economy.

He added, the consultancy's analysis suggested the main drivers of banks' return to lending would be better access to wholesale funding and a decrease in non-performing loans, rather than the Funding for Lending scheme making a material difference.

Meanwhile, European shares were up today as investors looked to central banks pumping money in  the euro zone and the US to offset the risk of further disappointing global economic data. Commodities though continued to remain under pressure.

The common currency, down around 1.3 per cent against the dollar last week as some traders factored in a possible interest rate cut, also rose higher on expectations that the European Central Bank would not push for more drastic action when it met this week.

The strong sentiment also received a boost from the  formation of a new government in Italy over the weekend, ending two months of political stalemate, which saw Milan's main stock index, the FTSE MIB gain over 1 per cent in early trade.

The broad FTSE Eurofirst index of top European shares rose 0.4 per cent, adding to a gain of 3.7 per cent gain last week, while Germany's DAX stood  0.6 per cent higher and France's CAC 40 was 1.0 percent higher.

Activity across the markets, though was expected to be light with Japan closed for a holiday, China off until Thursday, and the ECB and with US Federal Reserve to meet later this week.

Speculation though is rife that the ECB would cut its main interest rate at its monthly policy meeting on Thursday, in the backdrop of weak economic data across the region.