Royal Bank of Scotland will use the government's new flagship lending scheme to offer cheap funds to UK manufacturers.
The Bank of England and the Treasury launched their 'Funding for Lending Scheme' (FLS) in June as part of efforts to lift the economy out of recession, making £80bn of cheap loans available to banks provided they go to households and businesses.
RBS, which is 80 per cent state-owned, will have a manufacturing fund targeting medium-sized businesses with annual sales of between £25m and £500m, which are seen as a key source of growth for the British economy.
"Mid-sized manufacturers are key in helping the UK grow and export out of recession," said Peter Russell, RBS's head of manufacturing.
"Through Funding for Lending, these are the most competitive terms that we have been able to offer manufacturers for several years.
"We hope it will be a catalyst for investment."
The Confederation of British Industry (CBI) has said that if more manufacturing companies reach their potential it could add between £20bn and £50bn to Britain's annual gross domestic product (GDP).
Medium-sized businesses represent upwards of 30 per cent of the UK's manufacturing base.
Previous schemes to spur lending since the financial crisis have failed to give a clear boost to the economy.
The government and Bank of England say the FLS will be different as it ties banks' access to the scheme and the cost of using it directly to whether they raise total lending to businesses.
The RBS fund will offer UK manufacturers fixed and variable rate loans of between £250,000 and £25m.
Manufacturers will also benefit from being able to defer any capital repayments for two years, RBS said.
Manufacturers will be able to access loans over three- and five-year periods.
The fixed rates are 2.75 per cent and 3.2 per cent respectively, down from the previous rates of 3.45 per cent and 4.25 per cent.
British industrial output soared at the fastest pace in 25 years in July, boosted by the strongest monthly rise in manufacturing production since July 2002, raising the chances that the country is finally crawling out of recession.