Answer the question below

The Guardian

January 27, 2015

Bank lending to Britain’s factory owners slowed in December according to industry figures on Tuesday that indicate growing unease among manufacturers at the prospects for 2015.

The British Banker’s Association (BBA) reported that growth in bank lending to the manufacturing sector more than halved in the last six months and declined by £624m in December, compared to a £217m expansion of credit in the previous month.

The figures also show that borrowing by companies outside the financial sector contracted by £15.7bn in 2014, compared with a decline of £11.6bn in 2013.

The BBA played down the sharp decline, saying the figures can be volatile. It said much of the contraction in lending to non-financial firms was due to a collapse in borrowing by real estate businesses and a switch by large corporations from bank lending to the bond markets as a source of finance.

It said that 2014 saw positive borrowing growth in the manufacturing, wholesale and retail sectors.

But the recent decline in manufacturing chimes with comments by the British Chambers of Commerce, which has called on the government to boost investment to overcome nervousness in the sector.

Richard Woolhouse, the BBA’s chief economist, said: “Business lending has been falling as larger firms have used the bond market rather than borrowing from banks….”

The article describes the decline in British bank lending to businesses. Use the tools of the simple deposit multiplier to explain what impact this might have on the UK economy in the future.

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