The UK's banks and building societies are to be offered extra funding by the Bank of England to help boost lending.
The Funding for Lending Scheme, a multi-billion pound programme, aims to boost lending by banks and building societies to UK households and non-financial companies.
Under the scheme, the government will offer banks and building societies low cost funds at a fee of 0.75% above Bank Rate, currently 0.50%, over a four year period. This is under the condition that the money is used to offer lower and more accessible loan and mortgage rates.
The Bank of England is hoping that the new initiative will give lenders the incentive to free-up funding. Banks have been storing cash to assist their balance sheets as the economic crisis continues.
The Chancellor George Osborne said that he hoped the scheme would help households and businesses "at a challenging time". In a letter addressed to the governor of the Bank of England, Sir Mervyn King, Mr Osborne said "the scheme will support the flow of credit to where it is needed, complementing the MPC's asset purchase programme in easing monetary policy conditions".
The Funding for Lending Scheme, due to begin next month, follows an announcement by the Bank last week that a further £50 billion will be injected into the UK's economy as part of the quantitative easing (QE) programme.
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