* BoE scheme helps boost availability of mortgages
* But banks say have no plans to lend more to businesses
* Govt says Funding for Lending scheme “off to flying start”
* Unclear if availability means more home loans -economist
By David Milliken
LONDON, Sept 26 (Reuters) - A central bank scheme to revive lending in recession-hit Britain is boosting the availability of mortgages but has not yet benefited businesses, a survey by the bank showed on Wednesday.
The Funding for Lending Scheme (FLS) was launched by the Bank of England and the government at the start of August, partly in response to criticism that the bank’s main stimulus programme - the purchase of UK government bonds - had failed to unblock credit for households and small businesses.
Many economists believe Britain will inch out of recession during the current quarter - a stance reinforced on Wednesday by encouraging retail sales data - but the government is still under pressure to create tangible economic growth.
The central bank’s quarterly Credit Conditions Survey showed the biggest increase in mortgage availability since the survey started in 2007, and that banks planned to boost this by a further record figure in the coming three months - in part due to the FLS.
But economists will want to take a close look at August lending figures from the BoE due on Monday to see if banks’ intentions to lend are being matched by actions.
“We will have to watch whether the improvement in the survey is actually reflected in mortgage lending spreads and quantities in coming months,” said Citi economist Michael Saunders.
Lenders said in the survey that they had no plans to increase loans to business, and expected a small rise in corporate defaults over the next three months.
If the FLS succeeds in stimulating the economy, it would reduce the chance of the BoE increasing government bond purchases in November when it reaches its 375 billion pound quantitative easing target, as well as easing pressure on the unpopular Conservative-led coalition government.
Wednesday’s figures - which came a day after data showing five of Britain’s six main banks had signed up to the FLS - showed the scheme could only be counted a partial success so far, said Barclays economist Chris Crowe.
“This quarter’s survey will provide some reassurance to the BoE that the FLS is improving credit availability in the mortgage market at least. However, we continue to expect the FLS’s overall impact on credit flows to be fairly modest,” he said.
The finance ministry was more upbeat about the scheme, saying it appeared to have “got off to a flying start.”
But while some lenders have announced lower mortgage rates over the last two months, it was only last week that Lloyds became the first bank to say that it had drawn down funds from the FLS, some 1 billion pounds it planned to use for business lending.
BoE figures on Tuesday showed lenders could access 60 billion pounds of cheap financing initially, and potentially much more if they increased net lending.
The same day, BoE policymaker Paul Fisher said he was confident the scheme would help the supply of credit, and that without it net lending would probably fall. He did not put a figure on how much it might boost lending.