Lending plan mainly boosts house market

Julian Harris
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THE GOVERNMENT’S flagship lending scheme is boosting the mortgage market more than it is improving the supply of credit to small businesses, a Bank of England report said yesterday.

The Funding for Lending Scheme (FLS) was introduced by the Bank and the government this year, with the intention of loosening credit and aiding economic growth.

The FLS works by incentivising banks to lend by providing conditional funding at low rates. But the Bank’s latest agents’ summary of business conditions said: “The FLS appeared to be having a more immediate impact on the mortgage market than on business lending. Demand for bank borrowing among smaller firms remained weak.”

Many small firms are “preferring to pay down existing debt or build cash reserves”, the report said, while larger companies are able to access “very favourable terms via corporate bond markets or private funds”.

A spokesperson from the Federation of Small Businesses told City A.M.: “Recent data shows the FLS having more of an impact for homeowners. We should see next year that small businesses start to access it more; we will be keeping an eye on the figures.”