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Story added 11 March 2010.

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At a meeting with the Bank of England, Sir Ronald Halstead, President of the Engineering Industries Association (EIA), stressed that the UK’s fragile recovery was being put in peril by the behaviour of the banks.

He comments: “ The banks are holding back the growth of SMEs and slowing the supply chain. They are inhibiting export opportunities that would do much to establish British manufacturers abroad, improve our balance of payments and increase employment in the UK. The present devaluation of the pound sterling against the Euro and US dollar provides a tremendous opportunity for UK industry which is in danger of being lost.”

The EIA, which represents the interests of SMEs in engineering, met with leading trade associations from other sectors and senior Bank of England officials to discuss the current economic situation and its effect on SMEs.

Putting forward the views of EIA members, he noted that there were encouraging signs in the economy. Although there are variations from sector to sector, overall there is modest growth. There is some improved confidence, particularly among exporters, with export demand stronger, helped by the depreciation of the pound. Price increases are difficult in the UK market, but exporters have had the opportunity to increase margins. There is no downturn in employment levels and many companies are returning to full-time working from a four-day week, and even in some cases working overtime. Pay has been kept low – in the range of 0 to 2% - with the norm being a pay freeze.

The negative factors threatening recovery include a lack of funding for investment and the credit squeeze.

Says Sir Ronald: “There is still a credit squeeze. Banks are making it difficult and more expensive to borrow. They are increasing charges, reducing overdraft limits and asking for personal guarantees.

“They say that money is available but there is little or no demand from SMEs, but there is widespread condemnation of the Banks for the hurdles they have introduced which restrain companies from borrowing.”

There is little help coming from other quarters either. The view of EIA members is that the Government Enterprise Loan Guarantee Scheme is having limited success, with loans offered at 2% over normal bank lending rate.

Meanwhile, the European Investment Bank Loan Scheme for SMEs, which offers cheap loans for capital investment, is not being promoted by UK banks. European companies are taking advantage of this scheme.

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