Osborne to extend Funding for Lending Scheme

image captionGeorge Osborne is facing IMF pressure to consider slowing the pace of cuts

George Osborne is set to boost lending to small businesses as he faces growing pressure over his austerity policies.

The chancellor is expected to announce an extension to the Bank of England-run Funding for Lending Scheme (FLS) in the coming weeks.

The scheme was launched in August and was due to expire in January 2014.

The move comes amid pressure from the International Monetary Fund (IMF) for Mr Osborne to reconsider the pace of his austerity programme.

It also follows the decision by Fitch Ratings to strip the UK of its triple-A status on Friday, becoming the second of the big three rating agencies to do so.

The extension to the FLS may be announced before the IMF arrives in the UK to begin regular annual consultations with the government next month.

Sluggish growth

The scheme's launch last year was designed to boost lending to small businesses and households by providing banks with cheap loans on the proviso that they pass them on to customers.

The scheme has so far been criticised because Bank of England figures suggest participating banks were lending less money overall in the second half of 2012 than they were in the previous six months.

But it has also been credited with helping lower the cost of mortgages.

Mr Osborne first suggested extending the scheme in his Budget in March, and the Bank of England's Monetary Policy Committee said there may be "merit" in an extension when it met earlier this month.

The government hopes such schemes will help boost growth, which has remained sluggish since the UK first fell into recession during the 2008 financial crisis.

On Thursday, the Office for National Statistics will release its first estimates for how much the economy grew in the first three months of this year.

Many economists expect the economy to have grown, but only by about 0.1%.

'Time to consider'

Although it has yet to start formal discussions with the UK government, there are increasing signs the IMF believes the slow pace of growth means the UK should consider slowing the pace of its spending cuts.

Last week the IMF downgraded its growth forecasts for the UK, and chief economist Olivier Blanchard warned the UK was "playing with fire" and should consider alternatives to its current austerity drive.

IMF chief Christine Lagarde later told the BBC that "now might be the time to consider" adjusting the pace of the austerity programme.

But she stressed the importance of dialogue with the UK government.

IMF officials are due to arrive in the UK next month for annual consultations that allow it to monitor member countries and issue recommendations about economic policy.

Mr Osborne said he would defend his policies, saying: "Britain's got the right plan in terms of dealing with its deficit."

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