Bank lending falls by £2.7bn in final quarter of 2012, says Bank of England Bank lending dropped by £2.7bn in the last quarter of 2012 after three major banks cut back on business and mortgage loans. Photograph: James Boardman/Alamy Bank lending fell by £2.7bn in the final three months of last year after Lloyds, Santander and Royal Bank of Scotland cut back on business and mortgage loans, according to Bank of England figures. The three major banks offset the efforts by scores of building societies and smaller banks to expand their lending using funds from the government's £80bn funding for lending scheme (FLS). Analysts said the two state-owned banks, Lloyds and RBS, cut the number of loans they made last year against a backdrop of economic uncertainty and lacklustre demand. The banks are also under pressure from regulators to reduce outstanding loan balances to strengthen their financial position, despite using the Bank of England-run scheme, which is supposed to boost lending. Lloyds Banking Group has tapped the FLS scheme for £3bn since its launch last summer but has reduced the value of its loans by £5.6bn. RBS has cut £2.3bn from its overall loan book since the scheme began. Santander, which is the subsidiary of a larger group based in crisis-hit Spain, has reduced the value of loans by £6.3bn despite taking £1bn from the FLS. The full list of lenders is here. With three of the big five high street banks, which account for more than 90% of lending, cutting their capacity for lending, there is little hope of any sustained economic growth, analysts said. Business leaders added their frustration at the lack of credit, saying the figures were a blow to cash-strapped small firms, which have suffered a credit freeze for much of the last four years. According to figures last week, net lending to businesses fell by £4.5bn in the last quarter. Ed Balls, the shadow chancellor, said: "The chancellor must explain what action he will take to finally boost net lending to small and medium sized firms, which is vital if we are to get our economy moving." The Bank of England cautioned that the last quarter of the year is a weak period for lending, especially to businesses, and initial figures for the new year showed an expansion in credit. A £3.1bn boost to lending in January was also partly accounted for by the inclusion of HSBC, which has refused to join the FLS scheme. The lack of a clear trend is likely to perplex interest rate setters on Threadneedle Street's monetary policy committee (MPC), which meets on Thursday. Figures from the wider economy have proved disappointing following an unexpected drop in manufacturing. The pound tumbled last week in response to the decision by the credi ratings agency Moody's to strip the UK of its AAA status, after hovering around $1.60 for more than two years. Sterling fell on Monday to a session low against the dollar of 1.506 after the weaker-than-expected construction survey added to concerns the economy could slip into its third recession in four years. Pressure is mounting on the MPC to inject further funds into the economy through its policy of quantitative easing. The issue is seen as finely balanced. Three of the nine policymakers - including the governor, Sir Mervyn King - unexpectedly voted last month to restart purchases, which have the effect of pumping money into the economy.