The Funding for Lending Scheme: one year on It was on the day of this lecture last year that the Bank of England announced the first 13 banks and building societies to have signed up to the FLS. There are now over 40 firms participating, representing over 80% of the stock of lending to the UK economy. The total amount of outstanding drawings under the Scheme is over £ and rising. The MPC has been using a wide range of indicators at various stages of the transmission mechanism to help assess the extent to which credit conditions have improved since its launch. Let me run through those. Stage 1: bank funding costs Our first objective was to reduce bank funding costs – and this phase has been remarkably successful. Over the past year, those costs have fallen sharply (Chart 6). Of course, they are likely to have been affected by developments internationally, including Mario Draghi’s “do whatever it takes” remarks in July 2012. But usually sterling funding markets would react by less than euro-denominated markets to European developments. In fact, UK unsecured bond spreads fell further in the UK than in core euro-area countries – indicative of an additional boost from the FLS over and above general market developments.
As such, the rapid rise in headline inflation here has also been propelled predominantly by higher food and energy prices rather than aggregate demand. Inflation at current rates are uncomfortably high, but they are not expected to be persistent given Thailand’s very flexible labor market where extensive reallocations help to keep wage pressure contained while well anchored inflation expectations help to mitigate cost passthrough. 5