The 2013/06/11 at 08:07
Stéphanie Salti, in London
The Bank of England and the British Treasury seem set on supporting credit for individuals and businesses. On 24 April, the Bank of England announced the extension of its Funding for Lending scheme (FLS), launched in July 2012. This initiative aiming to privilege credit for individuals and businesses in exchange for favourable refinancing conditions on the interbank market for banks wishing to participate, will thus be prolonged by one year, until January 2015, and widened to include certain non-bank lenders such as leasing and factoring firms.
Above all, unlike the first version of the scheme, SMEs are now clearly targeted by this new initiative: for every net pound of credit granted to SMEs, banks can now claim ten pounds in loans from the FLS until February 2013, then five pounds until 31 January 2013. “The extension and widening of the Funding for Lending scheme shows that the Chancellor and the Bank of England are listening hard and acting to address continued business frustration around tight credit conditions,” comments John Longworth, Director General of the BCC. “We are particularly encouraged by the fact that incentives for SME lending have been sharpened.”
While the scheme, in its initial version, benefited households, businesses found themselves in need, as attested by the latest figures published by the Bank of England on 30 April: in March, loans to businesses may have progressed by 0.8 billion pounds in March this year, but shrank by 1.7 billion pounds over the first quarter. The extension of the FLS, one of the main tools for sparking Britain’s economic recovery alongside the country’s quantitative easing scheme, comes at a time when British economic conditions are improving. Britain avoided falling into a third recession by displaying growth in its GDP of 0.3 % in the first quarter. In addition, the publication of a certain number of economic indicators – the recovery of industrial production as well as the expansion of services – indicate the country’s return to stability.
In a context of economic improvement, the Bank of England also decided, during the last meeting of the Monetary Policy Committee on 9 May, to go no further than the extension of the FLS programme: the Bank of England has thus maintained its official Bank Rate of 0.5 %, a rate that remains unchanged since 2009, and its bond-purchase plan at 375 billion pounds.
Meanwhile, the BCC has not stopped applying pressure on the government and the Bank of England: while the FLS is a step in the right direction, the BCC is still waiting for the concrete setting up of the Business Bank, this public investment bank aimed at British SMEs