Stark evidence of the degree to which financial institutions have cut off their loan supplies to other businesses has emerged from a Confederation of British Industry (CBI) survey that also suggests banks and other financial companies will axe around 15,000 jobs in the UK this quarter.
Some 59% of respondents to the quarterly CBI Financial Services Survey said that business volumes in the three months to December fell compared to the previous quarter, with just 7% seeing a rise.
Business volumes have now declined for 15 consecutive months.
The impact on the rest of the economy has been severe, with the survey recording the biggest contraction in the volume of business between financial services companies and the rest of the corporate sector since it was launched in 1990.
A balance of 36% of financial services companies said they conducted less business with industrial and commercial companies in the past three months, while a balance of 14% expected that to decline further still.
This was a dramatic acceleration from 20% in September and even worse than the financial institutions themselves expected.
John Cridland, CBI deputy director-general, said: "Flows of credit to the corporate sector remain constrained and viable businesses are finding the availability and cost of credit very restrictive.
"The shortage of trade finance is hitting many industries and businesses."
One reason for the cut-back in financing is the sharpest increase in the number of bad loans banks have seen since 1992.
A balance of 89% of banking respondents had seen the value of non-performing loans increase in the previous three months, up from 41% in November and 7% a year ago.
The situation seems likely to get worse, with a balance of 95% of banks expecting the trend to deepen over the next three months.
The survey confirmed private individuals are also being hit, with a balance of 41% of banks reporting a fall-off in volume of business with this part of the market and 38% expecting another drop in the coming three months.
The CBI estimates from the survey results that some 10,000 financial services jobs were lost in the last quarter of 2008. It reckons the sector, which employs around one million people, will shed another 12,000 to 15,000 roles in the first three months of 2009.
These cuts are likely to fall predominantly in banking, which accounts for around half the sector, and life insurance, which has seen a massive fall-off in demand for products as stock markets founder.
A balance of 91% of life insurers expects to cut jobs over the coming three months, up from 85% in November.
In banking, a balance of 43% expects to cut employee numbers.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article