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Tight credit conditions are likely to weaken the economy’s recovery as the cost of borrowing increases, says manufacturer’s organisation EEF.

In a survey from the body, 47 per cent of firms reported an increase in the cost of borrowing from banks and other finance providers in the past two months, compared with 44 per cent in the second quarter and 37 per cent in the first quarter.

Steve Radley, EEF director of policy, says: ‘Despite historically low levels of interest rates and significant intervention by the government and the Bank of England, credit conditions remain very tight for most manufacturers.

‘Given the severe damage done to banks’ balance sheets by the recession, this is likely to remain the case for some time and will dampen the recovery as meeting new orders puts increasing pressure on manufacturers’ cashflow.’

Of nearly 700 businesses surveyed, only seven per cent of firms saw a fall in the cost of borrowing, down from ten per cent in the second quarter.

According to a survey by the Confederation of British Industry (CBI), some 18 per cent of SMEs recently reported a deterioration in access to existing credit lines.

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