By Ben Simmons

Credit conditions for manufacturing companies have eased slightly at the beginning of this year compared with the end of 2011, though the volatility of indicators on cost and availability of finance mean it remains an issue, according to a major survey published today by EEF, the manufacturers’ organisation.

However, the absence of any consistent signs of an improving trend suggests more still needs to be done to increase the availability and reduce the cost of finance available to business, especially smaller companies. In response, EEF is urging government to ensure the National Loan Guarantee Scheme is pushed strongly through bank networks and communicated to the private sector.

EEF’s Q1 Credit Conditions Survey shows a small improvement in the availability of new lines of borrowing over the past two months, but little change in views on the overall cost of credit among manufacturers.

Over the past year the volatility in our credit conditions survey is an inevitable consequence of the continued turbulence in Europe and financial markets. The balance of 3% of companies saying the availability of new lines of borrowing has improved is a turnaround from the 3% balance reporting a decline last quarter. But this is still down on where we were in 2011q3.

The balance of responses on availability of existing credit facilities remains in negative territory (-9%, compared with -5% in 2011q4).

The increasing cost of new lines of borrowing has also eased, with a balance 15% reporting an increase compared with 24% last quarter. However, in line with the trend we have reported over the past few years, the smallest companies are more likely to have seen an increase in cost over the period.

“We have to view an improvement in credit conditions as positive, but the absence of a trend showing that availability is increasing and costs are coming down on a consistent quarter on quarter basis indicates that there is more work to be done," said Ms Lee Hopley, EEF's chief economist.

“There are a number of initiatives in train from government and the banks with the National Loan Guarantee scheme set to be the next off the rank. This must have an impact on the cost of borrowing which translates into a greater appetite amongst firms to approach banks for finance.”

“The growth in business investment that our economy needs is contingent on manufacturers having the confidence to commit to their capital expenditure plans and being able to access finance at the right price.”

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