Manufacturing companies are spurning bank financing and hoarding cash, raising fears that firms will cut investment following the Brexit vote and spurring calls for the competition regulator to reform the services lenders offer to businesses.
Some 55pc of companies have amassed more cash on their balance sheets compared to before the financial crisis, according to a survey by the EEF, the organisation that represents the engineering and manufacturing industries.
It also found that 53pc of firms would suspend or scrap an investment if they were unable to finance it out of their own resources, and that only 35pc of businesses were now more inclined to seek external financing from other sources than they were in 2014.
“The concern today is that manufacturers are shunning the banks in favour of self-financing investment projects, potentially leading to lower levels of manufacturing investment overall,” the EEF said of the survey, which was carried out in February before the vote to leave the EU. “This presents a risk to growth that will likely be sharpened as the UK heads towards Brexit.”
The economic uncertainty caused by the EU referendum result “will add to the caution businesses are exercising towards bank finance”, the EEF predicted.
It comes ahead of the publication of the Competition and Markets Authority’s (CMA) final recommendations about shaking up the retail banking sector tomorrow, following its preliminary findings last year. The manufacturing body argued that implementing measures that would increase competition in the banking industry would likely encourage small and medium-sized businesses to turn to lenders for financing.
Last month, it emerged that Royal Bank of Scotland and Natwest were considering imposing negative interest rates on their business customers’ current accounts. The EEF cautioned that the manufacturers had now been left “particularly vulnerable” to such a move because of their swelling cash-piles.
Courtesy : telegraph.co.uk