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Lending declines £1.5bn for construction firms in six months

Bank lending to construction companies has dropped by £1.5bn in six months – the longest such decline since 2011.

The net amount being loaned to contractors has fallen in every month from March to August this year, according to the latest data from the Bank of England.

Its figures revealed that the net value of outstanding loans to construction companies stood at £32.6bn by the end of August, down from £34.26bn in March.

The last time there was such a sustained decline was 2011, when lending fell by £2.5bn in the seven months from January to July.

Lending for development projects has seen the largest cut at £525m over the six months to August.

The four other sectors monitored, covering commercial buildings, domestic buildings, civil engineering and other construction, also recorded falls in lending.

Cast chief executive Mark Farmer said the cut in financing posed an additional problem for the construction industry as the deadline for Brexit neared.

“With tier one contractors facing cashflow problems as we’ve seen in Carillion’s case, restricted finance puts pressure on an outdated delivery model built on so many layers of passing down risk and accountability,” he said.

“Together with recent warnings from the Bank of England of a drop in house prices post-Brexit, the construction sector faces difficult challenges.”

News of the cut in finance has come as the Construction Products Association downgraded its forecast for construction industry output in 2018 and 2019.

Brexit-related uncertainty and problems for high street retailers are expected to hit the commercial sector, while delays and cost overruns on Crossrail could slow down delivery on other infrastructure projects, the CPA forecast.

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