Barclays and Lloyds in £10bn borrowing boost from Bank of England term funding scheme stimulus

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The term funding scheme is aimed at pushing up lending to consumers (Source: Getty)

Barclays and Lloyds Bank borrowed more than £10bn from the Bank of England’s term funding scheme in the second quarter of this year, ahead of the removal of the lending stimulus early next year.

Barclays borrowed £6bn between April and June, while Lloyds drew on £4.5bn, according to the Bank of England’s latest data, published today.

The big increase in borrowing means the aggregate amount outstanding in scheme drawings for Lloyds stood at £13.5bn at the end of June. That leaves Lloyds just shy of Royal Bank of Scotland (RBS) as the biggest borrower on the scheme. RBS’s amount outstanding remained at £14bn, unchanged from the previous quarter.

Total lending under the scheme now stands at £75bn, with the Bank of England recently extending the total available to £115bn, up from an original estimate of £100bn.

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The term funding scheme was introduced in August 2016 by the Bank of England as part of its post-Brexit vote stimulus package. Participants, including the major British retail banks, can borrow central bank reserves in exchange for suitable collateral.

Other big borrowers under the scheme include Barclays, which has £10bn outstanding, as well as Santander and Nationwide, both of which have borrowed more than £7bn.

In August this year the Bank announced it will close the scheme at the end of February next year, after the period covered by today’s data. The end of the programme will make banks’ lending costs “increase sharply”, according to Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

The scheme aimed to push banks into passing on cuts in bank rate, the key interest rate charged by the Bank of England to private banks, to customers.

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In recent months the scheme has faced criticism from prominent economists. Simon Ward, chief economist at Janus Henderson, has previously called the continuation of the scheme a “contradictory policy”.

In June the Bank warned that some aspects of the consumer lending market were heating up to levels which constituted “pockets of risk” in the otherwise systemically stable UK economy.

However, at the same time the Bank’s term funding scheme has been boosting lending to consumers. Consumer credit grew by 9.8 per cent in the year to July, although that was the first month of below-double-digit expansion since April 2016, Bank of England data show.

The total stock of consumer loans stood at £201.5bn at the end of July.

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