Bank of England credit scheme sees moderate initial take-up
By David Milliken and Olesya Dmitracova | December 3, 2012 10:21 PM EST
British banks and building societies drew down 4.36 billion pounds from a Bank of England programme to boost lending in its first two months, in what analysts said was a moderately encouraging start.
Net lending by the banks involved rose by only 496 million pounds, but the BoE's executive director for markets, Paul Fisher, said it was too early to use Monday's data as a guide to the scheme's success - a view largely shared by economists.
The Funding for Lending Scheme, which opened at the start of August, offers banks cheap finance if they in turn lend on to households and businesses, and is aimed to boost the economy in ways that the BoE's 375 billion pounds of quantitative easing bond purchases has failed to.
"Quite whether it kick starts the chain reaction that is required to get the economy going is less clear. Nonetheless, it is a case of so far so good," said Alan Clarke, an economist at Scotiabank, which is not directly involved in the FLS.
Economists estimate that banks and building societies can access just under 70 billion pounds of cheap funding via the FLS, and they have until the end of January 2014 to do so.
The BoE and the government say a lack of lending is partly responsible for Britain's very slow recovery from the 2008-09 financial crisis, though firms' unwillingness to invest in an uncertain economic climate is also a factor.
Net lending figures since the scheme's launch vary widely across major British banks.
RBS said its fall in lending was mostly due to it scaling back commercial property loans, while Lloyds said it intended to draw down an extra 2 billion pounds of funds to support small business and mortgage lending.
The National Federation of Small Businesses said it was concerned that it would be home-buyers not businesses who got the bulk of the benefit of lower interest rates and increased credit availability.
Some analysts said the more visible impact on mortgage lending to date is because business lending has longer lead times.
The BoE expects it to be 6-12 months before the FLS's full benefits are clear, though others are more critical.
"There is a deep tension at the heart of the government's policy mix, where banks have to be less leveraged and at the same time lend more," said Darren Sharma, chief executive of credit analysts Frontline Analysts.
"The FLS is a considerable improvement on (previous government lending scheme) Project Merlin, which was flop, but it remains fundamentally limited in what it can achieve."
(Editing by Patrick Graham)
Most Popular Slideshows
- Kristen Stewart Moving On With Nicholas Hoult, Jennifer Lawrence Dating Chris Martin – Reports [PHOTOS]
- Chris Martin Dating Reports: Jennifer Lawrence Vs Gwyneth Paltrow [PHOTOS]
- Kate Middleton Suffocated in Kensington Palace, Queen Elizabeth Reported War With The Duchess [PHOTOS]
- 2014 MTV Video Music Awards: Everything To Know [PHOTOS]
Join the Conversation
- Tourre on stand says email in SEC case 'not accurate'
- Syrian authorities blocking access to needy in Homs - Red Cross
- Faith in European Union at low ebb, EU poll says
- Former UBS banker gets 18 months, $1 million fine, for muni bid-rigging scheme
- U.S. judge halts challenges to Detroit's bankruptcy bid
- Saudi Arabia: Brothers Beheaded For Smuggling Marijuana Into The Kingdom
- ISIS Posts Graphic Beheading Video of US Journalist James Foley
- ISIS: More Journalists Beheading To Come After James Foley and Steven Sotloff [Video]
- Nexus 6 Release Date Dilemma with Motorola Shamu Details Pointing to Better Smartphone and Killer Features
- After James Foley, ISIL Threatens to Behead Another American Journalist Steven Sotloff
- Moto X+1 is Likely Nexus 6 Template; Motorola Shamu is 1st Android Silver with Snapdragon 810 – Reports
- James Foley’s Executioner Has British Accent—A Chilling Reminder That ISIS Has Foreign Members