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Bank of England shifts Funding for Lending to ‘neutral’ 28 November 2013

The Bank of England (BoE) has today announced its Funding for Lending Scheme (FLS), launched 18 months ago, is to be scaled back by excluding mortgage lending from January 2014.

FLS was originally intended to boost mortgage lending to consumers, although the BoE has now scaled back the operation to avoid a housing bubble.

Instead, FLS will focus exclusively on business loans until the end of January 2015.

BoE governor Mark Carney said: ““Over the past year the Funding for Lending Scheme has contributed to the recovery by helping to significantly improve credit conditions, especially for households.

“The changes announced today refocus the FLS where it is most needed – to underpin the supply of credit to small businesses over the next year – without providing further broad support to household lending that is no longer needed.”

The FLS extension will continue to allow lending participants to draw from the scheme from February 2014 until January 2015, but household lending in 2014 will no longer generate any additional borrowing allowances.

Under the current scheme set-up, banks are able to borrow £1 from the BoE at various low interest rates for every £1 of net lending to households, and £10 for every £1 to businesses.

As of January 2014, banks will be able to borrow £5 for every £1 of net loans to corporate customers.

Chancellor of the Exchequer, George Osborne, said the scheme had been a “successful tool in supporting the recovery.”

“Now that the housing market is starting to pick up, it is right that we focus the scheme’s firepower on small businesses. Small firms are the lifeblood of our economy. That’s why we’re reforming the banks, introducing the employment allowance and now focussing the Funding for Lending Scheme to support them.”

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