Financial constraints and capacity adjustment in the United Kingdom: evidence from a large panel of survey data

Recent research has shown that the causes and effects of financial constraints for firms in the private sector is of key importance for a variety of policy issues relevant to central banks. First, the quantitative and qualitative features of monetary transmission depend on whether or not borrowing and other financial constraints have important effects on the real economy. second, the real consequences of shocks to the financial system depend on the way in which firms cope with their financial constraints. Due to the interrelationships between firms, financial constraints also may form part of a propagation mechanism creating systemic risk. Third, financial constraints might be especially relevant for investment activities that are difficult to raise finance for but quite important for economic growth, such as research and development, or the introduction of innovative products and processes.