LONDON (Reuters) - State-controlled Royal Bank of Scotland <RBS.L> said on Monday it would use the government's new flagship lending scheme to offer cheap funds to UK manufacturing companies, in a first move to put the scheme into action.
Britain launched its 'funding for lending' (FLS) plan in June as part of efforts to lift the economy out of recession, making 80 billion pounds ($128 billion) of cheap loans available to banks provided they go to households and businesses.
RBS's manufacturing fund will target medium sized businesses with annual sales of between 25 million pounds and 500 million pounds ($801 million) which are seen as a key source of growth for the British economy.
"Mid-sized manufacturers are key in helping the UK grow and export out of recession. Through Funding for Lending, these are the most competitive terms that we have been able to offer manufacturers for several years," said Peter Russell, RBS's head of manufacturing.
The Confederation of British Industry has said that if more manufacturing companies reach their potential it could add between 20 billion pounds and 50 billion pounds to Britain's annual gross domestic product. Mid-sized businesses represent upwards of 30 percent of the UK's manufacturing base.
Previous schemes to spur lending since the financial crisis have failed to give a clear boost to the economy. The government and Bank of England say the FLS will be different as it ties banks' access to the scheme and the cost of using it directly to whether they raise total lending to businesses.
The RBS fund will offer UK manufacturers fixed and variable rate loans of between 250,000 pounds and 25 million pounds. Manufacturers will also benefit from being able to defer any capital repayments for two years, RBS said.
Manufacturers will be able to access loans over three and five-year periods. The fixed rates are 2.75 percent and 3.2 percent respectively, down from the previous rates of 3.45 percent and 4.25 percent.
British industrial output soared at the fastest pace in 25 years in July, boosted by the strongest monthly rise in manufacturing production since July 2002, raising the chances that the country is finally crawling out of recession. ($1 = 0.6240 British pounds)
(Reporting by Matt Scuffham; Editing by Greg Mahlich)