Net lending by banks and building societies participating in the Funding for Lending Scheme (FLS) has improved though small firms are still losing out.
The scheme, which allows lenders to borrow money cheaply from the Bank of England, is designed to make it easier for banks to pass money on to borrowers in the economy at a time when banks are also required to strengthen battered balance sheets.
The Bank said that while net lending grew by £1.6bn in the second quarter of the year, banks in the FLS had actually cut lending by £2.3bn since June 2012.
Banks have drawn down £17.6bn of cheap funds from the FLS since it opened last August.
The biggest net lenders between March and June this year were Nationwide, Lloyds, Barclays and Virgin Money, the Bank said.
The figures showed that FLS was continuing to boost the mortgage market amid wider fears of a housing bubble being created by Government schemes including Help-to-Buy and the FLS.
Mortgage approvals for house purchase – which tend to lead net mortgage lending by a few months – edged higher in the second quarter suggesting that lending to individuals is likely to increase further, the Bank said.
But total net lending to businesses remained negative in the period though small and medium-sized enterprises (SMEs) fared better than large corporations.
Net lending to SMEs shrank by £583m during the quarter.
The Bank said: "Going forward, SME credit conditions should be supported by the extension to the FLS announced in April, which provides additional incentives for participants to increase lending to SMEs both this year and in 2014.
"A large proportion of FLS participants have indicated their intention to participate in the extended Scheme."
Commenting on the data, executive director for markets at the Bank of England, Paul Fisher, said: "The FLS is continuing to support lending to the UK economy with a range of indicators suggesting that credit conditions are steadily improving for households and firms, and FLS participants collectively expect net lending volumes to pick up over the remainder of this year."
Despite the continuing drop in SME lending from the FLS, it has been claimed that businesses are gaining in confidence over access to cash from alternative sources.
Adam Tavener, Chairman of Clifton Asset Management which runs pensionledfunding.com said: "Even though the FLS is in itself failing to increase lending, what we have been seeing with pension-led funding for some time is an overall desire from small business owners to move forward and start driving growth in the UK.
"This is backed by an extremely healthy alternative funding sector – including crowdsourcing and peer-to-peer lending – which has given business owners greater confidence in seeking finance for their companies."
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