By Daniel Hunter

A new report released by the Ernst & Young Item Club has revealed that bank lending to businesses will hit its lowest level this year since 2006, despite government efforts to stimulate lending.

The report forecasts that business lending will fall by 4.6% to £429 billion in 2012 from last year, the fourth consecutive annual decline.

Banks say demand for loans is low, while many businesses argue banks are unwilling to lend.

"Government schemes to increase lending may help a lucky few but, as banks are encouraged by regulators to store up more capital and to look again at their forebearance policies and so-called bad-loan books, most small businesses are going to continue to feel the squeeze," said Carl Astorri, senior economic adviser to the Item club.

He also questioned the effectiveness of the business bank, arguing that it would simply replace loans already being made.

"We expect the business bank will have to compete for projects that are commercially viable, and so we do not think the scheme will have a tangible impact on the economy," Mr Astorri said.

This is the latest in a long line of measures the coalition and the Bank of England has introduced to try and encourage banks to lend more.

In August, the Bank launched its Funding for Lending scheme to try to make loans cheaper. All the UK's major banks apart from HSBC signed up to the initiative.

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