8 But if the pendulum swings back too far and access to credit becomes too restrictive, that could become an impediment to growth over this recovery. In terms of the cost of funds, monetary policy has provided a powerful offset to any lending constraints. As Chart 8 shows, the cost of mortgage finance for households and the average rate on business borrowing has come down significantly. The current level of interest rates – even allowing for higher spreads on mortgage and business loans – is much lower than those prevailing over the recovery in the 1990s and at the current inflation rate the average loan rates shown in Chart 8 are close to zero in real terms. 9 There have been concerns registered about access to finance by individual businesses and business groups, though the banks also point out that the demand for new lending is subdued because of the natural caution of businesses about investment at present. In recent visits I have undertaken to businesses around the country, the general picture for manufacturing and services companies appears to be that they can get the finance they need, but it is more difficult and is taking longer and absorbing more management time. Lending related to property and construction appears more constrained, with some of the major banks seeking to substantially reduce their exposure to these sectors. 8  See Hume, M. and Sentance, A., (2009) “The Global Credit Boom: Challenges for Macroeconomics and Policy”, Bank of England Monetary Policy Committee Unit Discussion Paper no.27, June 2009.
The ability of British manufacturing industry to provide strong impetus to private sector growth will be an important offset to the drag to domestic demand from the rebalancing of public finances over the next few years. There is also evidence that strong growth in the global economy is benefiting parts of the services sector. Earlier this week, the airport operator BAA reported a 7.6% annual rise in traffic volumes at Heathrow Airport in September – driven by strong business travel growth to Asia and other emerging markets. From the position a year ago – when demand had fallen sharply at home and abroad in the wake of the financial crisis – this turnaround is impressive. So my verdict on the recovery would be “so far, so good”. But we have to recognise that we are still at an early phase of the upswing. It is not surprising, therefore, that growth is uneven across sectors and from quarter to quarter, and that confidence is still somewhat fragile. The state of confidence is not helped by the negative tone of much of the economic commentary at present – which seems to reflect a high degree of nervousness about the  3  Data is latest available: for manufacturing it relates to the three months to August and for services to the three months to July. BIS Review 134/2010  3  progress of the recovery. But this raises the obvious question: if things are so good, why do they feel so bad – to some people at least?