LONDON (Reuters): A scheme to get more credit flowing in Britain's stagnant economy will be expanded to include specialist lenders and will run for a year longer than planned. The BoE and the Treasury have been working on plans to extend Funding for Lending  scheme, and the newspaper said an announcement could come this week. Osborne is under pressure to do more to foster growth after Britain lost its rating - the top grade - from two agencies and the IMF said the govt should consider slowing the pace of its deficit-cutting programme.

The Financial Times reported on Sunday that Treasury officials hoped the introduction of a second stage of the FLS scheme might give the IMF reason not to criticize economic policy when it carries out an annual review next month.

Osborne said on Friday the government and the central bank would announce "fairly shortly" changes to the scheme, which provides banks and other lenders with cheap financing if they keep or raise lending to households and businesses.

The FLS was launched last year but so far it has not resulted in much more borrowing by small and medium-sized companies.

The Telegraph said the FLS, originally due to end in January next year, would be extended by a year to 2015.

The newspaper said the scope of the scheme would be expanded to include specialist institutions such as asset-based lenders, invoice finance houses and leasing firms in an attempt to ease the credit crunch still felt by small firms.

A Treasury spokesman declined to comment on plans to change the FLS beyond what Osborne had said on Friday.

Asset finance allows businesses to borrow against invoices and machinery.

Since coming to power in May 2010, the Conservative-Liberal Democrat coalition has introduced austerity measures to try and reduce a record peacetime deficit, but persistently weak growth has frustrated the government's economic plans.

($1 = 0.6554 British pounds)