British banks and building societies drew down 4.36 billion pounds ($7.0 billion) from a Bank of England program to boost lending in its first two months, in what analysts said was a moderately encouraging start.
Net lending by the banks involved rose by only 496 million pounds, but the BoE's executive director for markets, Paul Fisher, said it was too early to use Monday's data as a guide to the scheme's success - a view largely shared by economists.
Continue Reading Below
The Funding for Lending Scheme, which opened at the start of August, offers banks cheap finance if they in turn lend on to households and businesses, and is aimed to boost the economy in ways that the BoE's 375 billion pounds of quantitative easing bond purchases has failed to.
"Quite whether it kick starts the chain reaction that is required to get the economy going is less clear. Nonetheless, it is a case of so far so good," said Alan Clarke, an economist at Scotiabank, which is not directly involved in the FLS.
Economists estimate that banks and building societies can access just under 70 billion pounds of cheap funding via the FLS, and they have until the end of January 2014 to do so.
The BoE and the government say a lack of lending is partly responsible for Britain's very slow recovery from the 2008-09 financial crisis, though firms' unwillingness to invest in an uncertain economic climate is also a factor.
Net lending figures since the scheme's launch vary widely across major British banks.
Barclays was the only one to report an increase, with an extra 3.8 billion pounds of lending. Santander and state-backed Lloyds Banking Group and Royal Bank of Scotland reported net falls of 3.5 billion, 2.8 billion and 0.6 billion pounds respectively.
RBS said its fall in lending was mostly due to it scaling back commercial property loans, while Lloyds said it intended to draw down an extra 2 billion pounds of funds to support small business and mortgage lending.
The National Federation of Small Businesses said it was concerned that it would be home-buyers not businesses who got the bulk of the benefit of lower interest rates and increased credit availability.
Some analysts said the more visible impact on mortgage lending to date is because business lending has longer lead times.
The BoE expects it to be 6-12 months before the FLS's full benefits are clear, though others are more critical.
"There is a deep tension at the heart of the government's policy mix, where banks have to be less leveraged and at the same time lend more," said Darren Sharma, chief executive of credit analysts Frontline Analysts.
"The FLS is a considerable improvement on (previous government lending scheme) Project Merlin, which was flop, but it remains fundamentally limited in what it can achieve."
(Editing by Patrick Graham)