Martin Flanagan: It's an uphill struggle to get lending flowing once more FEW in the City or business world expect the taps to be suddenly turned on in 2013 for a flood of new lending to corporates, small businesses and households after a bleak backdrop for credit last year. Many economists say that - in the face of another likely tough 12 months for the British economy - there could well instead be a sense of "Groundhog Day" for credit flows as both businesses and consumers continue to pay down debt. In addition, banks face higher regulatory costs and continuing fines for scandals such as mis-selling payment protection insurance and rigging the Libor rate at which they lend to each other. Business experts say such a backcloth is likely to add to banking caution this year on lending, even though the battered industry's bad debts cycle has passed its peak. The Bank of England and the government tried to get banks to turn the lending juice on in 2012 through various initiatives. Most notably, these were the BoE buying gilts from the banks through the so-called quantitative easing programme to free up greater funds for lending to the nation; and the £80 billion Funding for Lending scheme (FLS) launched by the central bank and the Treasury. There are hopes that FLS -where banks get capital at cheap rates to encourage them to free up their own business and mortgage lending - will gain ground this year. The scheme is seen as only being partially successful in getting credit flowing last year. Of the six lenders that used the FLS, only three increased net lending to businesses and consumers between June and end-September 2012, despite £4.4 billion of funds being drawn down.Net lending fell at taxpayer-backed Lloyds Banking Group and Royal Bank of Scotland, as well as at Spanish-owned Santander. Barclays, Nationwide and Leeds Building Society were the only three that withdrew cash and increased lending, although figures showed net lending rose by £500 million across all the banks that had signed up to the scheme. The results came as a disappointment to some, with Labour Treasury spokesman Chris Leslie quick to criticise the scheme for not having more impact. Howard Archer, chief UK economist at IHS Global Insight, said: "I think FLS will help to lift mortgage lending [in 2013] - there are already signs of that. My best bet is it will eventually have a modest positive impact on lending to companies, but I doubt it will be a game‑changer. Much will depend on the general economic environment and whether banks feel more comfortable about lending to small companies. And much will also depend on the demand side for credit from companies. The latter argument, of small companies wanting to pay down debt in the austerity climate rather than take more on, was made by most banks last year. It is the "you can lead a horse to water..." argument and it is likely banks will use it again in public forums as a "difficult" business climate continues in 2013. Philip Shaw, chief economist at Investec, said: "It is difficult to tell for sure. But I think although Funding for Lending is likely to be successful, it will be in specific sectors. One area that does look to be already going better is mortgage lending. Anecdotally, we are seeing higher loan-to-deposit (LTD) mortgages being granted. We are now seeing 90 per cent LTDs being given at rates of 4.3 per cent, when at the low point it was impossible to get anything over 80 per cent at very expensive rates. Figures from the BoE showed that mortgage approvals in October rose to the highest level since the start of 2012, at £7.7bn. Less positively, a recent study by comparison website Moneysupermarket found that many of the biggest cuts to lenders" mortgage rates have been aimed at borrowers with larger deposits. Meanwhile, the minutes of recent Bank of England monetary policy committee meetings makes it a close call as to whether the QE programme - standing at £375bn - will be extended. There have been vocal complaints that older people, in particular, suffer because QE stimulates inflation and thus devalues their savings and pensions. Muddying the lending waters, the BoE has also said it is impossible to tell precisely the stimulus to lending given by QE because it is not known what credit lending levels would have been like without it. More distant in its likely impact on lending availability is Business Secretary Vince Cable's £1bn Business Bank to help small and medium sized companies. The scheme, which will be run in partnership with existing banks, was only announced in the autumn. It is not expected to be fully functional until late 2014, and many banking executives believe it would then take another couple of years to gain traction. The government will take some comfort, however, from recent figures from the British Bankers" Association (BBA) that showed the first rise in net lending to business in October since last May. The BBA said net lending to businesses - taking into account loan repayments - rose £247m in October to £295bn, compared with falls of £1.46bn and £991m in August and September respectively. In short, there are some positive signs to cling to, but they are too nascent to be sure overall UK lending will throw off the shackles of a five-year economic downturn in 2013.