Nor is there any sign of this changing. In the last 12 months, bank lending to manufacturers has fallen by 3.1 per cent, whilst lending to financial services has risen 4.2 per cent. And within this, lending to fund managers has risen 20.9 per cent.
Nor are manufacturers making up for a lack of bank finance by borrowing from other sources. In fact, Bank of England figures show that they were net buyers of bonds and equities in the first 11 months of 2013.
The question is: why is there such a difference between manufacturers’ and finance’s borrowing?
One possibility is a very old one: it was identified by the Macmillan Committee as long ago as 1931. It’s that banks - and the financial sector generally - are just too distant from industry. Even if manufacturers have good ideas, they often can’t persuade banks of this, and find it hard to post liquid or easily-valued collateral. By contrast, the financial sector can often put up liquid securities as collateral, and so raise finance more easily. (The fact that little has changed in the last 80 years reminds us that economies are path-dependent and that history matters).
However, a survey last year by the CBI found that only 11 per cent of manufacturers cited an inability to raise external finance as a constraint upon investment. This suggests that whilst banks’ reluctance to lend is a problem for some companies, they are the minority.
Instead, the causes for the weakness of manufacturing borrowing lie on the demand side. There are two big reasons why manufacturers aren’t borrowing. One is simply a cyclical one of weak demand and uncertainty: over 50 per cent of manufacturers cited uncertainty about demand as a constraint upon capital spending.
The other is low profits; two-fifths of firms cite this as a constraint. Official figures bear this out: in Q2, return on capital in manufacturing, at 7.2 per cent, was barely half that in services (15.1 per cent). Whilst this disparity remains, it’s little wonder that manufacturers are borrowing so little. And hopes of a genuine revival of manufacturing (rather than a mere cyclical upturn) are likely to remain forlorn ones.
