Refocused FLS scheme set to boost British businesses in 2014

Data released Monday on the Bank of England's (BOE) Funding for Lending Scheme (FLS) reveal a number of recent positive developments, and indicate it may have a greater impact in 2014, according to economists.The BOE and the government's Treasury launched the FLS in 2012 in a bid to motivate banks and building societies to boost their lending to the British real economy, by providing funding to them for an extended period, with both the price and quantity of funding provided linked to their lending performance.Last week the BOE refocused the FLS to remove the element of stimulus for house loans, and concentrated more on business loans. This revision comes into effect at the beginning of 2014.Howard Archer, chief UK and Europe economist with IHS Global Insight said that with Britain having now sustained a decent level of economic activity since second quarter of 2013 and the prospects for ongoing healthy growth currently looking pretty bright, it seemed highly likely that business demand for credit will pick up appreciably.Archer said, "There is evidence that firms are now looking to step up their borrowing as markedly improved economic activity in recent months lifts their confidence and need for capital." 

Archer pointed to evidence in a November survey by EEF, the British manufacturers' organization, indicating that the share of manufacturers with no need to borrow fell to 40 percent, which is the lowest level since the survey began in 2007.The figures released Monday by the BOE reported that banks and building societies drew down 5.5 billion pounds under the FLS in the third quarter.This brought the total amount of outstanding drawdowns under the scheme to 23.1 billion pounds, with 33 groups now benefiting. Meanwhile, the number of participating groups in the FLS scheme edged up to 42.The Bank of England also reported that net lending by participants in the FLS jumped by 5.8 billion pounds in the third quarter,Clawfoot tub faucets Total net lending amounted to 8.7 billion pounds in the third quarter, with 5.1 billion pounds going to the household sector and 3.6 billion pounds to businesses."While the flow of net lending going to businesses was still well below that going to the household sector, especially to small and medium-sized companies, it is at least encouraging to see some pick-up in lending to businesses." Archer said. 

A marked pick-up in mortgage lending and growth in house prices have been partly supported by the FLS and fueled concern that Britain is headed for a housing market bubble.Used excavator"Overall, the BOE data boost hopes that the FLS scheme is now increasingly supporting bank lending to businesses and that this support will gain traction over the coming months,Cast iron clawfoot tubs especially as FLS is to be focused purely on business lending from January." Archer said."It is really encouraging that overall lending is rising, as this will boost the confidence of businesses across the UK," said John Longworth, Director General of the industry body British Chambers of Commerce.However, Longworth said the real test for the FLS is whether it can really get finance flowing to SMEs."Unfortunately the improvement in credit availability is still mostly being felt by the usual suspects in the mortgage market and among large firms. Young, high growth businesses that could be the wealth creators of tomorrow are still being left out in the cold when trying to access finance," Longworth said."The re-focusing of FLS towards business lending is a step in the right direction, he said.