Bank lending falls by £300m in Q1

Net lending by banks under the Government's Funding for Lending Scheme (FLS) fell by £0.3 billion in the first quarter of the year, data from the Bank of England (BoE) shows.

Just 13 of the 40 participants in the FLS made drawdowns from the scheme in the three months to 31 March 2013, at a value of £2.6 billion.

The FLS aims to encourage more lending to businesses and individuals by allowing banks to reduce the cost of providing new loans by borrowing at lower rates from the BoE.

The BoE's executive director for markets, Paul Fisher, said:

"The picture of flat lending growth overall is broadly as expected at this stage reflecting reductions in some legacy portfolios being roughly offset in aggregate by expanding new lending. The plans of the FLS participants suggest that net lending volumes will pick up gradually through the remainder of 2013."

The news follows figures from the BDRC SME Finance Monitor report, which showed that just 39 per cent of SMEs are using some form of external finance despite Government schemes such as the FLS and the Enterprise Finance Guarantee.

Commenting on the BDRC figure, John Longworth at the British Chambers of Commerce said:

"The latest figures from SME finance monitor are concerning because they show a continued deterioration in companies' confidence when dealing with financial institutions. It is disheartening to see that the availability of external finance remains a barrier to growth for many businesses. Although it is understandable that first-time applicants remain among the least successful when applying for loans, many of these will be young and fast-growing firms who aren't getting the funding they need to expand. This is why we need to see a swift delivery of the British Business Bank with both the scale and the infrastructure needed to help dynamic businesses to grow."