Bank of England reports lending to house buyers fell by £400m in August - The Guardian

The Bank of England leapt to the defence on Monday of its new scheme to encourage housebuying after figures revealed that a recovery in mortgage lending has gone into reverse.

According to figures from Threadneedle Street, households repaid more debt than they borrowed in August, despite the launch of the Bank's Funding for Lending scheme as an £80bn scheme to cut the cost of mortgage borrowing.

The amount of new loans to households fell by £400m and the previous figure for July was reduced, the Bank of England said. But it denied the decline undermined the case for offering banks cheap credit through the Funding for Lending scheme.

A spokesman said: "Early indications suggest the FLS is having an impact, but it is unrealistic to expect to see that in lending figures for August."

Lending figures and mortgage approvals have remained stubbornly low throughout 2012. The Bank of England said in the summer the rising cost of mortgage borrowing was hitting demand and deterring homebuyers from entering the property market.

It warned that UK banks were pushing up mortgage rates after being viewed as vulnerable to the collapse of the eurozone, forcing foreign banks to increase the cost of loans to the UK banking sector. Funding for Lending provides UK banks with cheap funds linked to a commitment from lenders to pass on the benefits to homebuyers. Thirteen financial institutions, accounting for about 73% of UK lending, have signed up to the programme.

Paul Fisher, head of financial markets at the Bank of England, said last month that it would take until at least the end of the year before the success of the scheme could be judged.

The poor lending data added to renewed economic gloom from the manufacturing sector and figures showing a sharp drop in petrol consumption.

While environmental groups are expected to welcome news that fuel consumption has dropped, it will alarm economic forecasters who expect a strong pickup in activity in the second half of the year. The AA said petrol sales tumbled in the last quarter at the fastest rate since the financial crash. It said the fall had gathered momentum after a steady decline during the first half of this year.

Petrol sales between April and June declined by 497m litres compared to last year's second quarter.

The statistics from the Department of Energy and Climate Change show that, overall, more than two billion fewer litres of petrol and diesel were sold on forecourts in the first half of this year compared to the same period in 2008.

UK manufacturing activity dropped again in September as financial data provider Markit said the UK had suffered from the crisis in the eurozone.

Chief European economist Chris Williamson said: "Overseas sales continue to be hit by the ongoing deterioration in global economic growth, with the eurozone – the UK's largest export market – at the epicentre of the weakness."

The Markit PMI survey for September came in at 48.4, dropping further below 50, the mark that separates expansion from contraction. It fell short of analyst expectations of 49.3, and compares with August's reading of 49.6.

UK manufacturers suffered a double blow of falling output and rising costs. Companies said the decrease in output was caused by a decline in new export business and subdued demand at home. Costs surged in September, driven by the rising price of chemicals, energy, food, metals, oil and plastics.