Pressure mounts on BoE to revamp FLS as lending falls

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Official figures yesterday revealed a dramatic contraction in lending to businesses, adding to evidence that the £80 billion Funding for Lending scheme (FLS) is failing to make its mark.

The Bank of England said net lending shrank by £2.8bn in February, following a £300 million decline the previous month.

The continued slide in lending comes despite last year’s launch of the FLS, which is 
designed to offer discounted funds to banks providing they pass on the benefits to cash-strapped firms and households in the form of cheaper loans.

Howard Archer, chief UK economist at IHS Global Insight, said: “The survey adds to the pressure on the Bank of England and the government to come up with further measures aimed at boosting bank lending to businesses, with the focus particularly on easing credit conditions for smaller companies.”

The Bank said data covering “all UK-resident banks and building societies indicated that the stock of lending to businesses contracted by around £5bn in the three months to February”.

Chancellor George Osborne said in last month’s Budget that he was “actively considering” a possible extension to FLS.