U.K. Chancellor of the Exchequer George Osborne opened the government’s latest program to increase credit and boost the British economy after three straight quarters of decline.
The 80 billion pound ($125 billion) Funding for Lending Scheme with the Bank of England opens today and allows banks to borrow at cheaper rates for as long as four years. An existing plan based on the same principle that’s limited to small companies will be superseded by today’s program.
The plan will deliver “credit easing to the whole economy,” Osborne said in an e-mailed statement.
The Treasury said changes in market funding conditions meant the small-business loan program is no longer as attractive as the newer, broader plan that also gives banks the chance to supply more mortgages and other loans. The program is the latest measure to help the economy fend off contagion from the turmoil in the euro area and recover from a recession.
The Bank of England activated a sterling liquidity facility in June to ease potential strains on banks and restarted quantitative easing last month. Figures last week showed the economy contracted 0.7 percent in the second quarter, extending the U.K.’s second recession in three years.
The new plan allows banks to borrow Treasury bills from the central bank starting today to fund lending into the economy. Banks will have 18 months to use the facility and as long as four years to repay.
HSBC Holdings Plc won’t participate in the new program, saying July 13 that it will “continue to fund its planned lending growth through its own resources.” It added that it “would not hesitate to join” the scheme “should circumstances change.”