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Encouraging start to Funding for Lending Scheme

Encouraging start to Funding for Lending Scheme

Five of the UK’s six biggest lenders have signed up to the Funding for Lending Scheme (FLS), designed to stimulate the economy by making cheaper loans available to firms and individuals. HSBC is the only one of the top six not taking part. The institutions can borrow the equivalent of up to 5% of their loan books immediately. RBS and Lloyds have indicated that thanks to the scheme around £1bn each of extra lending to businesses has already been generated and there will be more to come. Before its introduction, it was more likely than not that the stock of credit would contract further over the next 18 months and the FLS should thus help with the supply of credit.

Madrid, the latest epicentre of the euro zone debt crisis, was ready to seek a new rescue package but only if its debt financing costs remain too high for too long. Investors have been jittery that Spain’s apparent reluctance to seek a bailout – a condition for European Central Bank action to cut the country’s borrowing costs – could propel the euro zone into even deeper trouble.  Spain needs to cut its budget gap by more than 60 billion euros in the next two years, a difficult task in a contracting economy.

Greece has said it would need as much as 15bn euros if it were given a two-year extension to its bailout. Greece is trying to qualify for the next 33.5bn-euro instalment of its 130bn-euro bailout, which is backed by the IMF and the other 16 euro nations, but its neighbours are reluctant to stump up more money to help Greece.

The GBP/USD has been on the decline since peaking at 1.6257 (September 25 high) and the pair has now settled in the region of 1.6170.  GBP/EUR is trading in the higher end around the 1.2575 level. It seems that the euro is under pressure today, dragged by the negative sentiment surrounding the markets.

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