Business Bank of England Funding for Lending Scheme stalls in first year

Scheme to increase the flow of cheap finance to credit-starved businesses sees no increase in lending in its first year – and overall business lending to small business continues to decline

A flagship Bank of England scheme to increase the flow of cheap finance to credit-starved businesses has resulted in no increase in lending in its first year.

Threadneedle Street said that despite having access to billions of pounds of subsidised credit since the Funding for Lending Scheme (FLS) was launched in the summer of 2012 net lending by banks and other financial institutions taking part in the scheme had fallen slightly.

The results of the Bank's quarterly survey show a small increase in lending during the second quarter of 2013 but the £1.6bn increase was insufficient to make up for the cumulative £3.9bn fall in the previous three quarters.

Under the scheme, UK financial institutions can obtain funding from the Bank of England at lower cost provided they pass on the benefits to households and firms.

When the FLS was launched, ministers were particularly keen to find ways of providing credit for small and medium-sized enterprises (SMEs) but the evidence suggests that the cheap funds have found their way into the mortgage market.

The Bank's overall figures for business lending – including both FLS and non-FLS participants – show that lending to SMEs continued to decline in the second quarter, although less rapidly than previously.

Paul Fisher, executive director for markets at the Bank of England, said: "The FLS is continuing to support lending to the UK economy with a range of indicators suggesting that credit conditions are steadily improving for households and firms, and FLS participants collectively expect net lending volumes to pick up over the remainder of this year."

Richard Sexton, director of e.surv chartered surveyors, commented: "The Funding for Lending Scheme has bathed the mortgage market in cheaper credit, but has left the SME market parched and arid. Although net lending is flat, banks have used the scheme to lower mortgage rates, ease criteria and introduce a wider choice of loans, which has prised open the first-time buyer market and sent house prices skywards.

"Gross mortgage lending has recovered to its pre-financial crisis levels, and looks set to remain strong. House purchase lending is 30% higher than last year and the number of loans could hit 70,000 per month by the end of the year. The scheme has done wonders for the housing market, but the main point of it was to provide credit to SMEs, who are starved of funding and can't grow."

Article Source : http://www.guardian.co.uk

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