Bank of England launches £80bn lending scheme

The Bank of England will finally turn on the taps in its £80bn scheme to boost lending to credit-starved firms this week as rate-setters ponder more action to tackle the UK's double-dip recession.

From Wednesday – the first day of the Funding for Lending scheme on which the Government's hopes rest to revive the economy – banks will be able to swap loans and securities for ultra-safe Treasury bills, which they can swap in turn for cash to lend into the real economy.

The beginning of the 18-month initiative comes after shock official estimates revealed a 0.7 per cent slide for the economy between April and June – the worst quarter for three years.

Individual lenders will be allowed to draw down Treasury bills worth up to 5 per cent of their total stock of business and mortgage loans as of the end of June, for a knockdown fee of just 0.25 per cent. If their lending levels fall they are charged more for the loans, but those who have boosted lending will be able to draw additional funding at the cheap rates.

As of March, lenders had £265bn in loans and securities placed with the Bank able to be swapped for Treasury bills. The urgency of the credit problem was underlined by the Bank's latest trends in lending report, which showed a worrying £3bn fall in business loans over the most recent quarter.

The Bank of England's markets director Paul Fisher told MPs this month that nearly 100 banks and building societies had signed up to the scheme. Analysts have expressed doubts over its size and questioned the demand among nervous businesses, but Mr Fisher said: "Any sustained growth of lending would be much better than where we are now, particularly in a world where our assessment was that lending growth was more likely to fall than to go up."

The Bank has also handed out £9.2bn in cheap six-month funding to banks in two auctions via its so-called Extended Collateral Term Repo facility, announced alongside Funding for Lending in June.

Its monetary policy committee is expected to hold fire on more money-printing on Thursday after voting for an extra £50bn in quantitative easing at the beginning of the month. Barring another euro flare-up, more QE is unlikely until the autumn, although members may again debate cutting rates below the current all-time of low 0.5 per cent.

IHS Global Insight's Howard Archer said: "The MPC will likely want to see what impact Funding for Lending is having before considering further QE."

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Customer Relations Officer

£13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Jemma Gent: Project Coordinator

£12 - £15 Hourly Rate: Jemma Gent: In this role you will report to the Head of...

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable