Lending to businesses will not return to pre-crisis levels until 2016, exacerbating the funding squeeze faced by small and medium-sized companies, according to the latest research by the Ernst & Young (E&Y) Item Club. The Club said that lending to businesses would fall 6.8% this year, following a 6.1% contraction last year, due to a “lacklustre” outlook for growth and business investment. It said that the Government's £20bn credit easing scheme, designed to boost lending to small companies, was unlikely to drive a sharp increase in lending E&Y also forecast a 7.6% fall in consumer credit this year, which would be the sharpest on record. It said that consumer-led sectors such as retail are likely to be hit disproportionately hard as discretionary household spending is cut back amidst difficult labour-market conditions, especially in regions hit hard by government spending cuts. Write-offs will increase to 1.9% of loans in the corporate sector, from 1.6% in 2011, according to the research. It said that insolvencies are likely to rise more sharply in the North East of England and Wales, where economic output is set to contract by 0.1% and 0.3% respectively.

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