Funding for Lending Scheme may be extended

An extension of the Bank of England’s £80bn Funding for Lending Scheme (FLS) may be gathering momentum, according to the Bank’s Monetary Policy Committee (MPC).

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During its latest meeting the MPC argued that they “saw merit in possible extension to the FLS that would boost lending further”, potentially paving the way for a further injection of finance for lenders to improve the flow of credit in the current climate.

Introduced last summer the FLS offers finance to banks and building societies at lower than available commercial rates with the provision that they pass these savings on to consumers and small businesses.

Welcoming the news of a possible extension, Kevin Daly, an analyst at Goldman Sachs, said:  “Given the constraints on fiscal policy, reducing the cost and easing the availability of credit should be the top priority for UK policy makers.”

While the scheme is said to have led to an increase in the availability of mortgage finance, the latest figures from the scheme have found that the effects of the FLS have yet to trickle down to small businesses, with figures revealing that total bank lending remains negative.

The minutes of the MPC meeting also outlined that the MPC is divided over increasing the size of the Bank’s £375bn quantitative easing (QE) programme by £25bn, with MPC voting six to three against expanding the asset purchasing programme.

Detailing the two sides of the debate some members in favour of more QE felt that “further asset purchases, by lowering longer-term interest rates and supporting a range of asset prices, could facilitate a smoother path towards the economy’s new equilibrium, help prevent a more-persistent reduction in spending, and thereby avoid potentially lasting damage to productive capacity”

On the other hand, others felt that further QE may only exacerbate inflationary pressures:

“Medium-term inflation expectations had drifted upwards in recent months, and a further easing might exacerbate this movement and prompt renewed weakness in sterling, with implications for wages and prices,” the minutes recorded.

To get the best rates on your borrowing you can compare personal loans with Propertywide.

Posted by: Nicola Severn Categories: Finance Tags: , 1 Comment

One Response to Funding for Lending Scheme may be extended

  1. avatar Richard says:

    Can’t see tin effects of this. Where are the 95% mortgages that are needed for first time buyers?