Funding for Lending use triples but businesses see much less than households

Harriet Green
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Use of the Bank of England's Funding for Lending Scheme (FLS) tripled in the third quarter. Net lending jumped to £5.8bn, against £1.6bn in the second quarter - the biggest quarterly net lending flow since the scheme was introduced last summer.

The Bank's latest data show that 21 banks and building societies took out £5.5bn of cheap credit, taking the total to £23.1bn, with 33 participants now benefitting. One new group joined the scheme in the period and the number of participating groups edged up to 42.

(Bank of England)

Last week the Bank said that, from the 1 January, it would be stopping the FLS for mortgages, re-focusing on lending to businesses, as concerns grow over the prospect of a new housing bubble.

Howard Archer of IHS Global Insight said that, although the flow of net lending going to businesses was significantly below that going to the household sector (especially to small and medium-sized companies), "it is at least encouraging to see some pick-up in lending to businesses." The Bank said that total net lending, including net lending by non-FLS participants, came to £8.7bn in the third quarter, with £5.1bn going to the household sector and £3.6bn to businesses.

Archer pointed out that that a sunny economic outlook means it seems "highly likely that business demand for credit will pick up appreciably" as confidence and the need for capital rise. He cited the November EEF survey that indicated that the proportion of manufacturers who don't need to borrow fell to 40 per cent - the lowest level since the survey was started in 2007.

The latest numbers showed that there was a renewed drop in net lending to businesses in October but, Archer stresses, this was driven by higher repayments of capital.

To further encourage lending, the Bank said:

The fee for all drawings from the FLS extension will be 0.25 percentage points, to provide certainty over the availability of cheap funds to support positive net lending to small businesses in 2014.

The FLS extension, announced in April, means banks and building societies can borrow until the beginning of 2015, with "incentives to boost lending skewed towards small and medium sized enterprises."

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