In its latest monetary policy report, the Bank of England finds that a period of historically high levels of borrowing (fuelled by government-backed lending) is beginning to ease, but that those in more Covid-vulnerable sectors of the economy (such as tourism and leisure) have found credit difficult to obtain.
The report also finds a dramatic downward shift in investment plans for businesses in 2020/21 due to economic uncertainty, although investment in areas such as IT infrastructure has become a priority in some sectors as remote working becomes embedded.
Whilst there are few surprises, the report does confirm that the downturn is less severe than originally feared, even if the recovery might take longer. The MPC are also considering whether the ELB for Bank Rate could fall below zero in order to provide stimulus so history may well be made within the next few months.
Contacts reported a significant improvement in the availability of credit for small firms after the introduction of the Bounce Back Loan Scheme. Following exceptionally high levels of borrowing for the few weeks after its introduction in early May, demand for credit from small firms eased but remained strong. Contacts also reported widespread use of the Coronavirus Business Interruption Loan Scheme. However, in hard-hit sectors such as retail, hospitality and leisure, there has been a tightening of credit availability as expectations of business failures increase.