UK banks withhold lending despite claims to the contrary

Despite the billions in bailout funds that has gone into them, British banks have been found to be misleading the UK government saying that they have increased lending - the latest figures from the Bank of England show that lending by banks to non-financial firms shrank by £14.7 billion in the last quarter.

Last week, Chancellor Alistair Darling called Britain's biggest banks to a meeting in order to pressure them to increase lending to small businesses and customers after it was revealed that lending to ''non-financial corporations'' declined by a record £14.7 billion between April and June - the biggest slump since the Bank of England started keeping data from 1997.

The decline in lending has hit the UK manufacturing, construction and services industries the most, which, with the rise of the sterling over the past few months, may erode the UK's competitive edge and exports, which have been keeping the country's economy afloat during the recession.

The refusal of banks to lend even after having received billions in taxpayers money had been a constant thorn in the governments flesh. In November, the government issued a half-hearted threat to nationalise banks if they refuse to lend to small firms and continue to levy high interest rates. (See: Lend or face nationalisation, UK government tells banks)

Shadow chancellor George Osborne had urged the government at that time to bring new legislation to force banks to lend and live up to its moral obligation of returning to bring lending to 2007 levels which was a part of the rescue deal.

But even in November, the banks disputed the government's claims and said that lending was close to pre-recession levels, which was backed by the British Banking Association.