Lenders set for cheap funding help until 2015

Tim Wallace
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GEORGE Osborne is set to extend the Funding for Lending Scheme (FLS) for another year in an effort to stimulate more bank lending and get the economy moving, it emerged yesterday.

He is also looking at ways to tilt the scheme in favour of small firms.

The scheme, launched in August, channels cheap funds into lenders from the Bank of England to lend on to businesses and households.

Interest rates have come down sharply since its launch and the mortgage market has picked up, particularly in London.

But the continued shrinkage of RBS and Lloyds, combined with a lack of demand from cautious small firms means lending overall fell £1.5bn in the first six months of the scheme.

The FLS was originally set to run for 18 months, offering four-year loans to the banks and building societies.

It is understood Osborne now plans to extend this to January 2015. The minutes from the Bank of England’s monetary policy committee reveal they too discussed its extension.

The government is believed to be considering how to help small firms in particular as much of the help from the scheme has gone to the mortgage market.

However distorting the market towards one sector may not be a realistic possibility as it would show the government getting to involved in directing the flow of credit.