The Bank of England said that lending to UK businesses dropped for a fourth month in a row in June, hitting small firms the most.
According to the Bank's latest Trends in Lending report, business lending shrank by £3.5 billion in June, and credit conditions for smaller businesses remained more difficult than for large businesses as small firms depend mainly on banks for funds.
The report also said Banks' net lending dropped by £50 billion during the last twelve months. Report accused of banks of sucking £50 billion out of British businesses.
Chairman of the Federation of Small Businesses, John Walker, also supported the report.
Commenting on the topic, Mr. Walker said, "Large businesses have many ways of accessing finance, with bank lending generally being a last resort. The opposite is true for small firms, with going to the bank being the main option."
Bank of England Governor Mervyn King recently slashed the UK growth forecasts to reflect the impact of the Government's emergency Budget, which will hack public spending and bring more taxes.
The Bank has left key interest rates at all-time low of 0.5 per cent to provide a boost to the money supply.
The report suggests that the Government's attempts to increase flow of funds to small businesses to ensure sustainable growth have had little effect.