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Funding for Lending Scheme extended

In a continuing effort to boost growth in the UK economy, the Bank of England’s (BoE) Monetary Policy Committee saw “merit” in extending their

Funding for Lending Scheme (FLS) for another year, out to 2015, as an alternative to expansion of its Quantitative Easing (QE) programme. This action was mooted by George Osborne, the Chancellor of the Exchequer, in his March budget speech.

Launched last August, and initially expected to finish in December 2014, the FLS has come into criticism, as it has so far failed to improve bank lending. Designed to encourage banks to lend – particularly to small to medium-sized enterprises (SMEs) – the banks were offered an extra £5 for every £1 they lent to these businesses. Now they will be able to borrow £10 in 2014 for every £1 they lend to SMEs in 2013.

In fact, the BoE’s own figures show that banks drew down £14bn from the FLS between August and December 2012, but surprisingly, lending from those banks to SMEs was lower than in the six months before the scheme was introduced.

This latest extension of the scheme will also see specialist finance houses embraced into the facility. At present these type of organisations offer over £20bn of working capital to SMEs each year. With interest rates, set by the BoE, at the historically low level of 0.5% for four years now, it is hoped that bank lending will improve in the short term.

The champions of UK business, the Confederation of British Industry’s (CBI) Director for Competitive Markets, Matthew Fell, said of this announcement: “Funding for Lending is only one piece of the finance jigsaw. Boosting firms’ confidence by raising awareness of the various funding schemes available is critical.”

However, Stephen Gifford, the Director of Economics at the CBI said: “With only a modest pick-up in growth expected, the possibility of further QE will remain a live issue.”

Issued by: Enable Independent Financial Life Planners
25c North Street, Bishops Stortford, Herts CM23 2LD
Telephone: 01279 755950 – Fax: 01279 657339
Enable Independent Financial Life Planners is a trading style of Enable Independent Limited is authorised and regulated by the Financial Conduct Authority.
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