Dearer borrowing as banks pass on higher costs

The cost of credit for small businesses and households has jumped as banks have passed on their own higher cost of funding to customers, according to a survey of lenders by the Bank of England.

Medium-sized firms have seen borrowing costs rise “significantly”, according to the Bank’s quarterly credit conditions survey. Small firms have also seen costs go up.

In addition, lenders reported they have increased the interest rate on mortgages to households and expect to impose a further increase in the second half of the year.

The Bank and the Treasury are working on a “funding for lending” scheme to ensure households and firms can borrow at a cheaper rate.