The UK government sold a £3.2 billion (€3.81 billion) stake in Lloyds Banking Group, a first step toward full private ownership of Britain’s largest mortgage lender.

UK Financial Investments, which oversees the government’s holding in the bank, sold 4.28 billion shares, or about 6 per cent of the company’s issued stock, to money managers, the London-based body said in a statement today.

The shares were priced at 75 pence.

Chancellor of the Exchequer George Osborne, constrained by the biggest austerity program since World War II, could use the proceeds to fund tax cuts or more spending before the next general election, due in 2015.

He has said Royal Bank of Scotland, which received a £45.5 billion bailout, is still burdened by too many poor assets to be sold.

"When you look at the share price, the government has been pretty smart in terms of their timing," said Ian Gordon, an analyst at Investec in London who has a sell rating on the stock.

The stock has climbed 61 per cent this year to 77.4 pence in London yesterday, above the 61 pence the government says it will break even after providing a £20 billion rescue in 2008.

JPMorgan, UBS Lloyds will be the largest sale of secondary shares since a £5 billion transaction in Italy’s Enel in August 2004, according to data compiled by Bloomberg.

Volumes of the sales doubled to nearly $67 billion this year, the data show.

The transaction will reduce the government’s stake in Lloyds to 32.7 per cent from 38.7 per cent.

The government still owns 81 per cent of Edinburgh-based RBS.

“We want to get the best value for the taxpayer, maximize support for the economy and restore them to private ownership,” the Treasury said in an e-mailed statement yesterday.

“The government will only conclude a sale if these objectives are met.”

Bloomberg