In U.K., Signs of Credit Thaw

By NEIL SHAH LONDON -- The U.K. government's efforts to revive bank lending may be starting to work, according to data released on Thursday. A Bank of England survey showed banks are planning to increase lending to British companies -- and households in some cases -- for the first time in more than a year. Meanwhile, house prices logged an unexpected 0.9% rise in March from February, the first such gain since October 2007, according to British mortgage lender Nationwide Building Society. More Fed Lending Facility Receives No TakersU.K. House Prices Up, But Caution Remains"This has got to be a good sign," said Howard Archer, chief U.K. economist at consultancy IHS Global Insight in London. He cautioned, though, that "it's premature to start getting too optimistic." The data are only a small part of an economic picture that remains largely dismal. Earlier this week, the Organization for Economic Cooperation and Development forecast the U.K. economy will shrink by 3.7% in 2009. And even if U.K. banks boost lending, the country still faces a large gap left by foreign lenders that have left the market. Meanwhile, the securitization markets, in which banks package and sell their loans to investors, remain largely shut. Over the past year, the U.K. government has put up more than £1 trillion ($1.444 trillion) in financing, debt guarantees, insurance and other measures in an effort to salvage its banking system and stem a sharp drop in lending. In the process, it has taken controlling stakes in two of the country's largest banks, Royal Bank of Scotland Group PLC and Lloyds Banking Group PLC. The Bank of England has also taken the unconventional route of pumping money directly into the economy by buying securities. The central bank's policy, known as "quantitative easing," is aimed at bringing down borrowing costs and making more funds available for lending -- two factors banks said were driving their plans to increase credit. In the Bank of England's credit-conditions survey, released Thursday, lenders said they expected the availability of credit for companies to increase in the next three months, after logging the first rise in more than a year in the three months ended mid-March. Lenders also expected a rise in the ability of households to get new secured loans such as mortgages. The survey wasn't all good news. The bankers polled said demand for loans to buy houses was down in recent months and they expect it to fall further. That poses a problem for the Bank of England's quantitative easing program: If demand for loans falls, making borrowing easier won't help the economy. Write to Neil Shah at neil.shah@dowjones.com