Osborne announces £140bn scheme to boost lending

At last night's Mansion House dinner, George Osborne, said the government would work closely with the Bank of England to develop a fund for lending which could protect the economy against the 'Eurozone debt storm'.

"We are not powerless," he said. "Together we can deploy new firepower to defend our economy from the crisis on our doorstep."

The move, by the treasury and the Bank of England, will see banks receive cut-price funding provided they pass the money on to businesses and households in an attempt to kickstart the economy.

The hope is that the "funding for lending" scheme will make credit more accessible to small businesses and those seeking a mortgage.  The move is expected to provide an estimated £80bn boost to loans to the private sector.

The Bank also announced the intention to pump £5bn a month into financial institutions to improve liquidity.

The StartUp Britain campaign welcomed the chancellor's proposal. "Small businesses and start-ups in particular have been struggling to find ways to finding the essential funding they need to help their businesses to grow," said Emma Jones, co-founder of StartUp Britain. "If we are going to be competitive and allow this new crop of diverse businesses to flourish, we need to remove the barriers to growth and seize the opportunity to be ahead of the game, whatever is going on around us."

But the Institute of Directors said more still was needed. "The liquidity scheme will need to be massively expanded if break-up and contagion spread across the euro zone." said chief economist Graeme Leach. "The funding for lending scheme helps the supply of money and the demand for it, by lowering the cost of borrowing. But the core problem remains. Companies alarmed by the euro crisis will not be eager to borrow regardless of the cost."

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