Small business lending stagnates as UK construction output shrinks

Downbeat data revives recession fears as Bank of England’s monetary policy committee kicks off two-day talks

British small business lending has remained stagnant and the construction sector shrank again, data shows, reinforcing a downbeat outlook for growth as the Bank of England starts its two-day policy meeting.

Sharp falls in construction output were largely responsible for the economy shrinking in late 2011 and early 2012, and threaten to tip Britain back into recession. However the central bank has been split for the past two months over whether the right response is to restart its purchases of government bonds, or try other measures.

Wednesday’s data is unlikely to shift the debate too far, but shows the challenges facing the monetary policy committee. The Markit/Cips construction data was weaker than expected as cold weather hit demand. The monthly survey of purchasing managers rose to 47.2 in March from 46.8, suggesting the sector contracted again, but not as sharply as in February.

“It seems highly probable that the sector suffered renewed and appreciable contraction in the first quarter of 2013 after all-too-rare expansion in the fourth quarter of 2012,” said Howard Archer, chief UK economist at IHS Global Insight.

A similar survey for the service sector in March, scheduled to be published on Thursday, will give a clearer sign of whether Britain has avoided its third recession in less than five years, having contracted in late 2012.

A separate survey, by the Bank of England, showed banks preferred to lend to homebuyers and big companies rather than small businesses over the past three months, and planned to do the same in the coming months.

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