I see more scepticism in the press today about how effective the Government’s Funding for Lending Scheme (FLS) has been. According to recent statistics from a report by the Bank of England, lending to British companies by banks and building societies fell by £4 billion in the three months to November. Commentators are suggesting that the ‘jury was still out’ as to whether the FLS was bringing down bank loans as quickly as had hoped. What can be said of the scheme is that it has led to significant declines in the cost of funding to banks and financial institutions seem to be willing to ease borrowing rates among consumers. Availability of credit to households has increased plus rates on fixed rate mortgages have dropped so that has to be good news.
It’s not therefore lack of credit that’s an issue. It’s a much wider problem of subdued demand. Lenders report that a lack of confidence among businesses was affecting their appetite for debt.
From my previous blogs you know that I’m a big supporter of the Funding for Lending Scheme. It certainly improved mortgage approval figures at the back end of last year and will most likely have an impact on the level of gross lending going forward, driving many analysts to make bullish predictions for the mortgage market in the year ahead.
However there’s only so much this initiative can do. On its own I can’t see that it is going to solve the Chancellor’s problems as to how to unblock the corporate credit market. He has to suggest ideas that can rebuild confidence in a still very subdued market. Thinking caps on!
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