The CBI yesterday gave warning that the relationship between businesses and their lenders has deteriorated sharply and that job losses will be acute this winter if the banks fail to lend (see Commentary, facing page).

The warning came amid heightened tensions over banks’ lending and their apparent failure to supply enough credit to small businesses and to pass rate cuts on to mortgage borrowers.

John Cridland, Deputy Director-General of the CBI, told MPs that if businesses were denied adequate credit this winter, employers would be forced into sharp cuts in jobs and investment. Relations between banks and business had suffered badly because of the financial crisis, he told the Commons Business and Enterprise Select Committee.

MPs were told that the crisis had caused banks to be less willing to make lending decisions based on specific companies’ circumstances.

The Federation of Small Businesses said yesterday that there had been no improvement whatsover in bank lending since political pressure on the banks to maintain lending, led by the Prime Minister and the Chancellor, began to build last month.

Alistair Darling has insisted that those banks being recapitalised by the Government should maintain the availability of lending at 2007 levels. However, bankers privately say that his assurance is virtually meaningless.

Mr Cridland said: “Over the winter, there will be significant refinancing by a high number of businesses and we really need to see banks become more open to business.”

He added: “One of the worst consequences [of the credit squeeze] is the relationship between businesses and their banks.”

Mr Cridland said: “Firms are unable to borrow their way through the downturn as in other slowdowns over the last decade.” The CBI is calling for a one-point rate cut by the Bank of England’s Monetary Policy Committee tomorrow, but Mr Cridland said that CBI members were not expecting to see the benefits of cheaper rates immediately because interbank lending rates needed to fall further first.

Evidence of strains from the credit crunch emerged in Bank data revealing that businesses are drawing on deposits held with banks as they tap into reserves amid the loan drought. The Bank’s adjusted figures showed that funds on deposit from nonfinancial businesses fell by £7.5 billion in the third quarter, the third successive quarterly fall. The fall in companies’ cash on hand in bank deposits afflicted all the main sectors of the economy, with a record year-on-year fall of 5 per cent for services firms and a record 3.8 per cent drop for property companies.

Lord Mandelson, the Business Secretary, suggested UK banks were embarrassing Gordon Brown on the world stage by failing to pass on rate cuts. On a business delegation in Dubai with the Prime Minister, he said: “One of the things that has struck me going round the Gulf is the extent to which our own British PM is now being looked to as someone who will lead the rest of the world out of this mess. If we can’t even have a response in our own country to his moves, to his decisiveness, that will come as a surprise to many.”

The British Bankers’ Association said: “High street lending rates have to reflect what it costs banks to fund loans, whether from customers’ deposits or from interbank borrowing.”

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