Belfast Telegraph

Time, and GDP, will tell if project proves a success

By David Elliott

The Bank of England's Funding for Lending scheme has come in for plenty of criticism over the last couple of months but now seems to be making some tangible headway.

The principle is simple: lend more to small and medium-sized businesses and you can claim a subsidy on borrowing from the central bank, providing you pass on the savings.

Sounds easy and there are plenty of banks already doing it, although the UK-based lenders and particularly the partially state-owned banks seem to be taking hold of the baton more swiftly than others.

That's been mooted as a slight disadvantage for Northern Ireland where much of the banking scene is made up of lenders headquartered outside of the UK, but as the story on page 38 shows, others are on the road and will soon be joining the party.

For small businesses that should be good news because the more banks involved in the scheme the more chance that they'll be offered a (slightly) discounted loan, providing they meet the criteria.

But does the funding for lending scheme get to the root of the problem? Is it helping to get the flow of money moving again and the economy back to health?

Bank of England Governor Mervyn King certainly thinks so after extending the schemes last week.

And recent GDP figures, which showed the UK managed to avoid a triple dip recession, would suggest that something is working but, on the other hand, a 0.3% increase in GDP is not something you'd want to read too much in to.

Probably more telling is the appetite to borrow by businesses.

That's something which has been played down by banks up and down the country who say they've money to lend but not enough applicants, even at a reduced rate.

That doesn't reflect well on the economy and suggests there's a lack of confidence that runs deep.

And when it comes to the funding for lending scheme, the question of whether banks, chastised for being too loose with their money during the boom years, should be enticed by the central bank to boost lending by cheap money themselves, remains.

We've had Project Merlin, we've had the National Loan Guarantee Scheme and now we're majoring on Funding for Lending.

Will it work? Time, and GDP, will tell.

Belfast Telegraph