London, England, United Kingdom (AHN) – British Chancellor George Osborne and Business Secretary Vince Cable are warning banks of the negative effect of loan rationing on the country’s economic recovery. The two will issue next week a green paper on the topic.

Coalition Warn Of Loan Rationing Dangers

According to the Bank of England, more loans are being repaid than loans being granted. Another study by PricewaterhouseCoopers warned that tougher capital rules and the stop of stimulus spending could mean a loss of $1.5 trillion (1 trillion pounds) for the British banking system in the coming years.

Banks maintained there is no demand for loans, while businesses explained they are not filing loan applications for fear of being turned down or they are discouraged by high interest rates. Cable acknowledged the arguments of both sides, but indicated there will likely be no changes in the present lending targets for the Royal Bank of Scotland and Lloyds Banking Group, which received massive stimulus funds from taxpayers.

Since the global financial crisis in 2008, lending exceeded payments only in three months, according to data from the Bank of England.

The Commons Treasury Select Committee added the risk of a double-dip recession comes more from the spending cuts and tax hikes initiated by the coalition government. But the committee admitted that on the long-term, the government austerity measures will strengthen the British economy. The measures target to cut Britain’s budget deficit and reassure the international markets of U.K.’s ability to repay its debts.