Lending has improved for both businesses and households, which is a strong indicator that economic recovery is well on its way.

The Bank of England has announced that mortgage approvals increased by approximately 2,000 in February, which exceeded the projected 1,000.  Additionally, lending to both small and medium businesses increased by £239 million – the first sign of an increase since August 2011.

Indications that the markets are improving comes hot on the heels of the Bank’s announcement that it has given the Funding for Lending (FLS) scheme an overhaul that will improve credit conditions.  This news also follows a 0.3% growth in the first quarter of this year.

Just last week the FLS was extended and modified with new incentives that were added to encourage more lending to smaller businesses by banks.

Despite the fact that bank officials originally said that the FLS would take some time to impact small businesses, the increase in lending throughout March hints that the wait may not be so long.  In addition to the rise in small business lending, borrowing costs have decreased overall.  The average interest rate on new business loans up to the value of £1m fell from 3.85% to 3.75% in February.

Consumers are also seeing an overall improvement in lending, with first-time homebuyers getting a drop from 4.73% to 4.67% in interest rates for two-year fixed rate mortgages.  Lending money for house purchases is up by 6% since March of last year.

The average mortgage rate fell in March from 3.5% to 3.43%, thus easing conditions for homebuyers.