What is the first thing you notice about this chart. Looks rather flat doestn't it. Even in the first quarter of 2009, things haven't changed much.
This chart tracks UK gross profitability in the private non financial corporate sector. Despite the recession, UK profitability is holding up quite well. Yet the UK banks have basically abandoned lending to UK firms. Profitabilty, or the lack of it, doesn't explain why.
This chart tells us that the business case for corporate lending is unchanged, so why don't the banks want to lend? It has to be that banks see something nasty in the future. They expect future profitability to decline.
Why would they think that? Because UK monetary and fiscal policy is chaotic. The current mess will end badly, the private sector will suffer and therefore it is better to avoid lending.
There is a simpler way to save the UK economy. It is radical idea. The government should run its finances responsibly and the Bank of England should stop trying to inflate our way out of a recession. It will work. Furthermore, the UK economy won't recover until we sort out the policy mess.