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Treasury's Funding for Lending scheme shows mixed results

However cheap the cash on offer is, you can't make people want to borrow. Photo: PA Wire

When the Bank of England and the Treasury revealed 'Funding for Lending', a super-size scheme to get money flowing around the economy, wise heads cautioned that cheap cash on its own wouldn't make people want to borrow. It's demand, stupid, was the warning.

And this morning's figures on the early performance of the scheme seem to bear this out.

The banks have started using the scheme. It is technically working; money is being lent at very low rates, with RBS saying it is lending at just 3 percent and has got rid of some arrangement fees, for example.

And lending across the big banks has gone up by £496 million in the last three months.

But here's the first snag, it's only Barclays that has actually lent more. Santander, and the banks we own, part of RBS and Lloyds, have actually lent less.

The second snag is that figures published separately show that net lending to business, acknowledged to be the problem, has actually fallen during the same three month period.

Funding for Lending does appear to be cutting the cost of borrowing for some, but however cheap the cash on offer is, you can't make people want to borrow.

The Bank of England says there is still some evidence of banks 'tightening' lending for business. And fear of the banks and a lack of confidence in the economy is still holding many firms back.

However large the scheme created by big brains at the Treasury and the bank may be, on its own it is not the solution.