Funding for Lending scheme ‘not helping firms’

The FLS offers banks cheap credit if they maintain or increase lending to households and businesses. Picture: PA
The FLS offers banks cheap credit if they maintain or increase lending to households and businesses. Picture: PA
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A FLAGSHIP scheme backed by the Treasury has failed to have “any material impact” in lifting bank lending to companies, analysts claimed yesterday.

The UK government and the Bank of England have been trying to spur credit growth to support Britain’s economic recovery via their Funding for Lending scheme (FLS). It offers banks cheap credit if they maintain or increase lending to households and businesses.

While the initiative has succeeded in bolstering banks’ balance sheets and improving mortgage availability since its launch last summer, the impact on business lending has been less visible. The FLS was recently revised to increase incentives to lend to smaller firms.

The criticism came after new figures revealed that net lending to non-financial businesses had slumped by £3 billion in April – the biggest fall so far this year. It follows declines of £545 million in March and £2bn in February.

Howard Archer, chief UK economist at forecasting consultancy IHS Global Insight, said: “The further, and markedly deeper, drop in net lending in April adds to the evidence that the Funding for Lending scheme has so far failed to have any material impact in lifting bank lending to companies.

“The data therefore highlight why the Bank of England and the Treasury felt the need in April to extend the FLS with the particular emphasis on incentivising lending to smaller and medium-sized companies.”

He added: “Of course, it needs to be borne in mind that low lending levels to companies have reflected weak demand as well as supply factors.

“There is clearly low demand for credit with many companies still very wary about borrowing and investing in the current difficult economic environment.”

Citi analyst Michael Saunders said it was probably too soon to see the impact of the changes to the scheme, adding: “But, so far, rather than providing “Funding for Lending”, the FLS still seems to be providing “Funding for Not Lending”.”

Yesterday’s central bank figures showed that mortgage approvals edged up to 53,710 in April, their highest since January but below the level forecast by economists. Schemes such as NewBuy and Help to Buy have been introduced specifically to give people with smaller deposits a helping hand.

Ashley Brown, director of mortgage broker Moneysprite, said: “The rise in lending in April was not a quantum leap but it’s still further proof that the property market is now on firmer ground and people feel more confident about making purchases.”