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Business group the Confederation of British Industry (CBI) called on banks to free up lending to small and medium enterprises this winter, warning that many firms will be looking for funding.

John Cridland, deputy director-general of the CBI, said businesses would be forced to cut jobs and investment if banks did not free up access to credit.

He told the Commons' Business and Enterprise Committee that the relationship between banks and business had suffered because of the credit crunch and that banks remained suspicious of lending to businesses. The government promised to encourage banks to open access to credit to business as part of its bail out package but never made clear how this would happen.

The CBI is calling for a one per cent cut in interest rates today.

Cridland said: "We have talked to businesses of all shapes and sizes across the UK, and the need for a further rate cut is clear. The recession into 2009 will be both longer and deeper than expected, and we need the strong medicine of a full percentage point cut."

The Federation of Small Businesses told the same Committee that banks were still failing to deal properly with smaller firms. The FSB welcomed the recent pledge of £4bn in support for SMEs from the European Investment Bank but remained concerned that funding - which will come through the banks - was not available now. A third of FSB members complained that credit is now less available and another third said existing credit had got more expensive in the last two months.

The FSB is also calling for a one per cent cut in interest rates to 3.5 per cent. The TUC wants a cut of 1.5 per cent.

The Bank of England monetary Policy Committee meets later today. ®

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