Chancellor George Osborne has unveiled plans for a new Government backed bank aimed at small businesses, saying they would be able to gain access to 'multi-billion pounds' of funding.
Unveiling the plans on the BBC's Andrew Marr Show, the Chancellor said the 'weakness' in the banking system was one of the UK's biggest problems.
"Small businesses are the innocent victims of the financial crash," he said.
Further details are to be announced later in the year, but according to the Chancellor the small business bank will be sponsored by the Government and have a strong private sector focus. However, according to the Telegraph, no new Government funding will be put into the bank.
The new bank will aim to bring together the 'alphabet soup' of existing funding schemes available to small businesses, such as the Business Finance Partnership and Enterprise Capital Funds. The new Funding for Lending scheme was also launched earlier in the month aimed at increasing the flow of credit to businesses and individuals.
The announcement comes amid reports that show UK manufacturers are experiencing the toughest trading conditions in three years, with the EEF and BDO manufacturers' organisation survey showing weakening across the whole of the sector in the last three months.
Output, orders and confidence in the sector have all fallen in recent months, leading the EEF and BDO to downgrade their outlook, with a contraction of 1.5 per cent now expected in 2012 and hopes of a small improvement of 1.5 per cent in 2013.
Mr Osborne said: "We are getting on top of the deficit."
"These are difficult times for the British economy, it's a difficult time for the world economy but our economy is healing. We have to do more and we have to do it faster."
Director general of the British Chambers of Commerce (BCC), John Longworth said: "The creation of a business bank won't have an instant impact but it will underpin future jobs, investment and confidence and create a decisive legacy for this government."
Outlining its own case for the establishment of state-backed business bank, the BCC said it should become a clear 'first port of call' for dynamic and fast growing companies that should 'compliment, not cannibalise' existing banks and lenders.
It wants to see a new bank open for businesses by the end of the current Parliament.