Business lending falls as FLS fails to hit the mark

The Bank of England said net lending to firms large and small dropped by £3.8 billion during August. Picture: TSPL

The Bank of England said net lending to firms large and small dropped by £3.8 billion during August to hit the lowest level since December 2012.

It follows a rare increase of £466 million in July and suggests that the year-old Funding for Lending Scheme (FLS) – launched by the central bank and UK Treasury – is struggling to make an impact. FLS offers banks and building societies discounted loans in return for boosting the flow of credit.

The BoE figures, which cover lending to non-financial companies, are in stark contrast to consumer mortgage approvals, which hit their highest level in more than five years in August in a revival that is likely to get a further boost south of the Border from the second phase of the Westminster government’s Help to Buy scheme.

Adam Marshall, director of policy and external affairs at the British Chambers of Commerce, said slumping business lending was extremely disappointing, and shows “Britain’s business finance system remains broken”.

He said: “While bigger and older companies can get finance when they need it, many young, dynamic and fast-growing businesses are still frozen out. When these innovative companies can’t get the finance they need, they don’t expand.”

IHS Global Insight economist Howard Archer said: “The sharply increased fall in net lending to non-financial companies is somewhat surprising, as the hope is that with the economic climate improving and the Funding for Lending Scheme being extended in April, banks would be increasingly lending to companies.

“So far, it has appeared that at best the FLS may have stopped lending to businesses from falling more than it has.”

He added: “Of course, weak lending to businesses reflects demand as well as supply factors and it is evident that a number of larger companies are looking to alternative sources to raise capital.”