Chancellor George Osborne is readying an extension to the Government's Funding for Lending Scheme in an effort to boost lending to small and medium-sized businesses (SMEs).
The £80 billion scheme has improved lending activity from homeowners and large businesses, thanks to more attractive mortgage and lending rates for lower-risk parties.
But lending to SMEs remains thin, the Bank of England has revealed. In the final six months of 2012, net lending contracted, particularly from state-owned banks (read more).
The Chancellor had stated his intention to expand the Funding for Lending Scheme in the March Budget, though it was recognised that it needed to better address small-business lending.
The Monetary Policy Committee (MPC) has also voiced support for an extension of the scheme to improve lending to SMEs.
An extension to the Funding for Lending scheme would be disastrous to savers, however. The scheme has been blamed for a collapse in the rates on savings accounts, with banks turning to low-cost funds rather than competing for retail deposits from savers.
But the extension comes as pressure mounts from the International Monetary Fund (IMF) about failures in the Coalition government's austerity programme.
The government is desperately hoping to avoid a triple-dip recession when provisional first quarter growth figures are announced this week.
Mr Osborne is expected to stick to his guns when the IMF assesses the UK economy next month. And further details of the Funding for Lending for small businesses are expected to precede the IMF's visit.
A more immediate problem for the Chancellor is the decision by credit ratings agency Fitch to downgrade the UK's credit rating from AAA to AA+. Fitch claims the downgrade was due to a "weaker economic and fiscal outlook."
Keith McDonald
Which4U Editor
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