Corporate distress signs 'to rise'

Some of Britain's biggest banks expect signs of corporate distress - including insolvencies - to increase, the Bank of England has said, as the economy struggles to emerge from the double-dip recession.

In a quarterly report on trends in lending in the UK, the Bank said while the major UK banks indicated that recent indicators of corporate distress were stable, the outlook was weaker.

The rate of corporate liquidations was unchanged in the year to March while the corporate write-off rate was also broadly unchanged, the Bank said.

Elsewhere, the report revealed that lending by all UK-resident banks and building societies to business fell by around £3 billion in the three months to May, while gross lending for house purchases was broadly unchanged.

Meanwhile, figures showed a fall in lending to small and medium-sized enterprises, while credit availability was broadly unchanged for businesses, according to respondents to the Bank's Credit Conditions Survey.

The Bank said credit was normally available for firms with strong balance sheets, while some smaller firms reported they were still often unable to secure loans.The major UK lenders said demand from small and medium-sized enterprises remained subdued, the Bank added.

John Cridland, CBI director-general, called for rules on protective cash buffers to be relaxed to help unclog lending to businesses.

He said: "With lending levels falling and prices rising, we need immediate action to boost lending in the economy to help growth.

"The Government has this week announced good initiatives to boost exports, and the Funding for Lending scheme should help lower costs, but action on liquidity buffers would have most impact now.

"The Treasury and Bank of England have signalled a willingness to relax liquidity rules, but the FSA needs to drive forward with these changes immediately so that banks can release funding into the economy."