UK business lending in doldrums despite BoE scheme

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Take-up of the Bank of England's Funding for Lending scheme is still negative, despite billions lent to banks.

While net lending by banks taking part in the scheme to small and medium-sized enterprises (SMEs) was slightly less negative in the second quarter of 2014, at -£400 million ($663.5 million), than the previous quarter, it was still a negative number, and is unlikely to quell critics of the scheme.

The scheme was launched two years ago by the Bank of England, in an effort to boost funding for small and medium enterprises, as well as mortgages. Banks were lent money at low interest rates, to encourage them to lend it out in turn to small businesses and consumers. There is still close to £45.7 billion outstanding in loans taken out through the initiative.

However, it proved more successful at enabling mortgage lending than lending to businesses - so the Bank stopped the scheme for mortgages and extended it for businesses.

"These new Funding for Lending figures again show that growth ambitions are not being translated into demand for finance, especially for smaller businesses that have not been able to capitalize on cheaper credit," John Allan, national chairman of small business group the Federation of Small Businesses, said in a statement.

"While Funding for Lending has had an impact on the price of credit, the trend in lending suggests there remain issues with credit allocation through the banks."

Still, funding for SMEs by the banks taking part in the scheme has continued to be negative.

This could be due to "weaker demand," the Bank of England said in a statement.

Net lending by banks through the scheme in the three months to the end of June was £3.2 billion, and the lenders drawing down the most from it were state-backed Lloyds, Santander and Virgin Money.- By CNBC's Catherine Boyle