Business lending shrinks in March UK business lending shrank in March, although the number of loans approved for house purchases picked up slightly in contrast to expectations. Data from the Bank of England showed that lending to private, non-financial companies - the businesses that form the backbone of the UK economy - fell by £1.7bn in March, a somewhat smaller contraction than in recent months. But, overall, lending to business is falling at an annualised rate of more than 3 per cent at a time when politicians are exhorting banks to make more credit available. "Both the supply of, and the demand for, loans will remain contained through 2012," said economists at Moody's Analytics, an affiliate of the credit rating agency. Britain's central bankers will be watching developments in credit markets closely. Severe credit tightening would drag the economy back into a deep recession. Further quantitative easing by the Bank of England is unlikely to be announced at the May monetary policy meeting, but future action will not be ruled out. The number of new mortgages approved to buy homes rose slightly to 49,860 from 49,029, while remortgage loans also picked up slightly. Economists had expected to see a slight decline in the number of mortgage approvals because of the expiry of a tax break offered to first-time buyers purchasing homes valued at under £250,000. David Tinsley, an economist at BNP Paribas, said the latest numbers suggested that the number of new loans could drift higher. "The data are still down on the levels seen in the final quarter of 2011, but they suggest that the expiry of the first-time buyer stamp duty holiday has not had a very negative impact on the housing market," he said. There was also a slight pick-up in consumer credit by £400m, with an annualised growth rate over the past three months of 1.7 per cent. Meanwhile, economists pointed to another positive sign in the data: the rate of growth of M4 money supply with activity of "other financial corporations stripped out" - a measure the Bank's monetary policy committee tracks closely - ticked up by £8.2bn in March. Over the previous three months, this has been rising at an annualised rate of 6.4 per cent, a stronger rate than in previous months but still well below the level the Bank believes is inflationary. However, the data pointed to some factors that may lead to less credit availability, particularly that of banks" rising cost of funds. The average rate on banks" time deposits - funds that must remain with them for a set time period - drifted up to 2.86 per cent in March, well above the current bank rate of 0.5 per cent.