|Bank of England policymakers have played down hopes that the Funding for Lending cheap credit scheme will kickstart growth by warning it was not a “silver bullet” for the recovery.
The Bank extended the scheme by a year and gave lenders extra incentives to back small businesses last month following its success in improving mortgage conditions.
Andrew Bailey, deputy governor for prudential regulation, said: “What we have seen over the last year is quite a substantial change in the funding costs of banks which has fed through into lower lending costs, but more so in terms of the amount of lending in the mortgage market than for small firms.
“We cannot say that this will conclusively deal with the question of whether the problem is a lack of loan supply or demand, but we can say that we have used our toolkit to create a big incentive for banks to lend to small firms.”
His attempt to manage expectations of the scheme was echoed by Paul Tucker, deputy governor for financial stability, who said the revamped FLS was not a “silver bullet” but should have some effect on lending within six months.
Mr Tucker added in an interview with the Journal newspaper in Newcastle that there was “certainly reason for hope” the economy was on the mend after stronger than expected 0.3pc growth in the three months to March.
“We shouldn’t get too excited by one quarter, but looking over the past year it’s perhaps not as bad as the headline figures suggest,” he said, adding: “I think there’s a long way to go.”
Speaking at the Chartered Banker Dinner in Edinburgh, Mr Bailey also defended the regulators’ decision to force banks to raise £25bn of capital this year – half of which has yet to be identified.
“We see evidence today of better capitalised banks tending to see more rapid growth in lending,” he said. “Balance sheet strength is a necessary pre-condition of stronger lending to the economy as a whole.”