Bank tries to ease route to cash for borrowers

The Bank of England and Treasury’s “funding for lending” programme will see an estimated £80bn offered to banks on condition they pass it on to businesses and households in the form of cheaper loans and mortgages.

The co-ordinated action is among several measures to boost lending as banks face a worrying new phase in the credit crisis.

Worsening conditions in the eurozone have been making it harder and more expensive for banks to borrow, while they have also been hoarding cash to shore-up their balance sheets in the face of economic woes.

The Bank and Treasury hope the funding for lending initiative will provide the incentive needed for banks to do more to support the economy.

Under the proposals, UK banks will be offered cash at low interest rates over four years.

But the funding will be linked to bank lending performance in what marks a direct attempt to break the log-jam in credit hitting the economy.

Bank Governor Sir Mervyn King – who first revealed the plans in a major speech last month – warned this week that a “great black cloud of uncertainty” hung over businesses as the eurozone crisis deepened.

He said businesses had had fewer loans since the crisis started, but that the programme should help make borrowing easier for them.