By Rohan Churm and Amar Radia of the Bank’s Monetary Assessment and Strategy Division, Jeremy Leake of the Bank’s Financial Institutions Division, Sylaja Srinivasan of the Bank’s Data and Statistics Division and Richard Whisker of the Bank’s Sterling Markets Division.
The Bank of England and HM Treasury launched the Funding for Lending Scheme (FLS) in order to encourage lending to households and companies. The FLS offers funding to banks and building societies for an extended period. And it encourages them to supply more credit by making more and cheaper funding available if they lend more. Easier access to bank credit should boost consumption and investment by households and businesses. In turn, increased economic activity should raise incomes. Early signs have been encouraging, as funding costs for UK banks have fallen sharply. But it will be some time before the impact of the FLS on lending is clear. The Bank is monitoring a range of indicators in order to assess the direct and indirect impacts of the Scheme.