Lending scheme may be given more muscle

Amid evidence that the Funding for Lending (FLS) programme has so far failed to get banks lending more, minutes of the Bank’s most recent rate-setting meeting showed policymakers “saw merits” in boosting the scheme.

Chancellor George Osborne said at last month’s Budget that the Treasury and Bank were considering possible extensions to the FLS.

It is thought they want to split the scheme into two, as banks that are currently shrinking their legacy mortgage books are not able to qualify for the cheapest rates, which is holding back improvements in business lending.

The FLS is also likely to be extended past the current deadline of January 31 next year.

The scheme was launched last summer by the Bank and the Treasury to offer lenders funding at low interest rates on condition it is passed on to households and businesses.

There were further signs in the Bank’s minutes that policymakers believe FLS could be a more effective stimulus tool than its current quantitative easing (QE) programme, which was again held at £375bn in April.

Governor Sir Mervyn King and fellow policymakers David Miles and Paul Fisher failed to win further support for boosting QE by £25bn, according to minutes of the last MPC meeting.