The Chancellor, George Osborne, is set to announce in the weeks to come that the Government will extend the Funding for Lending Scheme (FLS) beyond its current end date.
It is thought that the announcement comes after pressure on Mr Osborne from various sources to reconsider the severity of his austerity programme, one of which was from the International Monetary Fund (IMF), which arrives in the UK next month for its annual consultation with the Government.
Launched in August 2012, the FLS was brought in to boost lending to small businesses and individuals and offers cheaper cash to lenders, as long as they pass the savings on to borrowers.
However, while the scheme has been credited with lowering the cost of mortgages, it has been less successful in helping small businesses. In fact, recent Bank of England figures suggest that participating banks were actually lending less to small firms in the second half of last year than they did before the scheme was launched.
Mr Osborne had first suggested extending the FLS during the Budget in March, and the Bank’s Monetary Policy Committee (MPC) discussed the extension at their meeting earlier this month, saying that there may be “merit” in doing so.
The Chancellor is hoping that an extension to the scheme will help to boost the economy, which is expected to show very sluggish growth of as little as 0.1 per cent during the first quarter of this year when official figures are released later this week.