News Article

Bank Lending

Lending to UK businesses shrank in the second quarter of 2014

By CreditMan Friday, August 29, 2014

Lending to UK businesses shrank in the second quarter of 2014, the Bank of England has announced, despite its attempt to stimulate lending via the Funding for Lending Scheme.

Meanwhile since the scheme was introduced, cash rates for savers have plummeted, as banks have used the Funding for Lending Scheme instead of trying to attract deposits. Some rates have fallen by as much as 60% since the scheme was launched (see below).

Laith Khalaf, Senior Analyst, Hargreaves Lansdown:

'The jury is still out on the Funding for Lending scheme and the figures don't increase the chances of a positive verdict. The Bank of England will maintain that the scheme will take some time to have full effect, and we don't know what business lending would be shrinking by if the scheme were not in place. Lending demand may also be part of the problem. Perhaps so, but meantime savers are bearing the brunt of the pain in their deposit accounts and cash ISAs.'


Overall lending by Funding for Lending Scheme participants shrank by £3.9bn in Q2 2014, according to the Bank of England, of which £3.5bn was accounted for by large corporates and £0.4bn by SMEs. Aggregate drawings on the scheme by banks now stand at £45.7bn, of which Lloyds and Nationwide are the largest participants, making up £14bn and £8.5bn respectively.

Rates on cash have fallen since the Funding for Lending Scheme was launched in July 2012. Cash ISAs and bonus accounts have been hit particularly hard- they have roughly halved- though there are a number of factors at play in these rates besides the Funding for Lending Scheme, including market competition and new regulatory liquidity standards for banks.