Bank lending has been given a boost after £80bn was made available to help the UK's struggling economy.
The Bank of England and the Treasury have launched the Funding for Lending scheme (FLS), which will give the money to banks in order to provide cheaper loans and mortgages to businesses and households.
As exclusively revealed by Sky’s City Editor Mark Kleinman, it will spell the end of the Government’s National Loan Guarantee Scheme (NLGS), known as credit easing, which was unveiled in March to encourage lending to businesses.
Chancellor George Osborne has expressed support for the new scheme, though it replaces the NLGS he launched less than six months ago.
He said: "The more generous FLS has officially opened for business and will in time effectively take over from the NLGS, delivering credit easing to the whole economy."
Under the FLS, British banks will be offered funding with low interest rates over a four-year period.
Rates will be as little as 0.75% including fees, much cheaper than standard commercial rates which range from 1.25% to 2.5%.
The Bank of England and the Treasury are hoping this will benefit first-time buyers and small businesses desperately in need of affordable credit, as the UK is in the midst of the longest double-dip recession in 50 years.
But some experts are warning that despite cheaper funding, banks and businesses will still show reluctance to lend and borrow money.
Shadow Treasury minister Chris Leslie has criticised the Chancellor, saying his initiative to boost lending has had little impact.
Mr Leslie said: "Despite promises from ministers, net lending to businesses has fallen in every month of this Government.”
He added: “There are serious questions about whether the new Funding for Lending scheme will really see lending to businesses become cheaper and easier to access."
Speaking to Sky News about the new scheme, John Baines, chief financial officer at Aldermore bank said it should prove successful.
He said: "This will change the economics, because this will give us cheaper funding."