It has been revealed that UK banks have missed the lending targets set by the Government to British businesses. The deal between the UK banks and the Government, called Project Merlin, involved an agreement to lend £76billion to small and medium sized businesses (SMEs) in 2011.

The Merlin initiative would have saw the major banks lend £190bn of new credit in 2011, which would have resulted in £47.5 billion being lent each quarter.

Sky City editor Mark Kleinman, recently revealed that the major banks including Lloyds Banking Group, RBS, Barclays and HSBC have only lent £16.8 billion in the first quarter of 2011 to SMEs.

The importance of lending

Lending from the major banks is essential to aid in the economic recovery. The UK banks will lend to small to medium sized businesses, which in turn will increase the employment rate. The money earned by the business and employees will in turn provide the UK Government with income from taxes.

For the millions of people struggling to get a job, including the 847,000 people who have been unemployed for longer than 12 months, the failure to lend money from the banks has a detrimental effect on their lives. The inability to gain employment means a life on jobseekers allowance and housing benefits, which is only just enough money to survive month to month.

The recovery process

If the recovery process is to take shape we need lending to increase in order to kick start the economy and revive consumer confidence. Lloyds Banking Group made £2.2 Billion worth of profit at the end of 2010 (before they had to set aside money for the PPI reclaims). The profits being made at the Lloyds Banking Group suggest a healthy business. We should remember the UK Government owns 41% of the recently struggling bank and should be asserting its influence to improve lending.

It’s expected the UK Government will not take action on this information until the end of 2011. If by the time the banks and Government meet the lending situation has not improved, then we would hope strict action is taken. People are struggling to survive as a result of the current UK financial problems and we believe banks and Government have a duty of care to offer support to aid the UK economic recovery.