UK scheme to get banks to lend more fails as lending falls

A scheme in the UK aimed at boosting credit to households and businesses has so far failed to get banks and building societies to lend more, figures showed today.

The Bank of England said net lending in the quarter to December 31 fell by £2.4bn (€2.77bn) on the previous quarter, despite participants of the Bank of England’s Funding for Lending (FLS) scheme drawing down another £9.5bn (€10.9bn) over the period.

The Bank said it expected credit conditions to improve over the course of the year and pointed out that net lending increased £3.1bn (€3.57bn) in January.

Barclays has tapped the scheme for £6bn (€6.9bn) since June and lent almost all of it, while Santander reduced lending by £6.3bn (€7.27bn) in the last six months despite drawing down £1bn (€1.15bn).

Alan Clarke, director at Scotiabank, said: “It is not entirely unexpected that lending has gone down. The Bank would say that this is not a bad thing, in the absence of the FLS, lending might have fallen even more.”

In the fourth quarter 11 banks and building societies brought the total amount drawn from the scheme to £13.8bn (€15.9bn).

The FLS scheme was launched last summer by the Bank and Treasury to offer lenders funding at low interest rates on condition it is passed on to households and businesses.

In a recent speech Paul Fisher, executive director for markets at the Bank of England, said the FLS had clearly shifted the supply of credit, with loans generally available at lower cost than previously.

He said: “Even though lending rates have fallen, it is still quite early for much extra money to have flowed from the application stage into actual loans, compared with previous plans which showed that lending was most likely to fall in aggregate without the FLS.”