BoE’s Funding for Lending Scheme Fails to Lift UK Businesses

The Bank of England’s (BoE) Funding for Lending (FLS) scheme, a state-backed initiative launched last August to boost funding for UK businesses, failed to make an impact in its first months. Net lending fell by £2.4bn in Q4 of 2012 compared with Q3.

Data shows that 13 banks and building societies drew £13.8bn of cheap funds from the FLS scheme between 1 August and the end of December 2012. Although 10 increased their lending their efforts were more than offset by massive withdrawals by three of the main UK high street banks; Royal Bank of Scotland (RBS), Lloyds and Santander.

The FLS was launched with the aim of making £68bn available to the UK’s banks at reduced interest rates by January 2014, with the proviso that they guarantee to then lend the money to small and medium-sized enterprises (SMEs) as well as to individuals. A total of 39 lenders signed up to the scheme, but 26 have yet to use it. Lending by all 39 was also disappointing according to the BoE’s data as they withdrew £1.5bn of credit between August and the end of December.

Business groups are concerned about the lack of impact the FLS is having on lending to companies. The British Chambers of Commerce (BCC) said the figures were “clearly disappointing”, and John Walker, chairman of the Federation of Small Businesses (FSB), commented: “It is clear that FLS is benefiting the mortgage market more than the small business sector.” However, the BoE said that the fall reflected seasonal borrowing behaviour, and that it expected “a gradual pick up in net lending over the course of 2013”.

Lloyds, which is 40%-owned by the UK taxpayer, reduced its lending by more than £3bn during Q412, while Santander cut back by £2.8bn. However, Barclays increased its lending by £1.8bn. Nationwide, the UK’s largest building society, increased its lending by £1.7bn but this mostly went to individuals as it has a large mortgage book.

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