Lending fears as manufacturers look for finance

With signs that an economic recovery is now underway, the EEF said manufacturers needed "certainty and confidence" that the banking system will be able to provide the finance they need to meet demand.

The survey of more than 300 companies found that demand for finance for working capital has been relatively muted across manufacturing but, in most cases, their needs have been met.

Most of the respondents reported no change in the cost of credit over the past two months compared with the previous quarter. The proportion of companies reporting an increase in the overall cost of finance from banks and other finance providers was unchanged at 32 per cent in the past two months. This compares with a peak of 47 per cent in the third quarter of 2009.

Forty per cent of companies saw the cost of new borrowing rise in the past two months, down from 47 per cent in the previous quarter.

Alan Hall, the EEF regional director, said: "Evidence that credit constraints have started to calm down will help build some confidence across the sector.

"But we are only at the early stages of a recovery and as demand for finance has been subdued the financial system has yet to be tested. The key question is whether the banks will be there for manufacturers as a return to growth generates greater demand for finance."

The survey was conducted between January 28 and February 17, with 328 companies responding.

The EEF will be releasing its first quarter manufacturing outlook survey and economic forecast on Monday March 1.

EEF, the manufacturers' organisation is the representative voice of manufacturing in the UK together with ECIA, the Engineering Construction Industry Association and UK Steel.

The EEF has a membership of about 6,000 companies of all sizes, employing 900,000 people from every sector of engineering, including manufacturing, engineering construction and technology-based industries.