Bloomberg News

U.K. Studying Credit Easing to Boost Companies, Osborne Says

October 03, 2011

(Updates with U.S. credit-easing policy in eighth paragraph.)

Oct. 3 (Bloomberg) -- Chancellor of the Exchequer George Osborne said the Treasury will look at ways of funneling money directly to British companies, a measure he described as “credit easing” that will complement the central bank’s monetary policy.

“There is more the government can do to get credit flowing,” Osborne told supporters at the Conservative Party’s annual conference in Manchester, England, today. “I will get the Treasury to work to direct money into the economy. It’s known as credit easing. It’s another form of monetary activism.”

The practice of credit easing allows authorities to buy private-sector assets to increase liquidity and credit in the economy. The Treasury is looking at three options, according to an official at the department: instructing the Bank of England to buy corporate bonds; encouraging a secondary market for loans to small companies; or co-funding loans to such companies directly.

Osborne is facing pressure to stimulate economic activity amid a slowdown triggered in part by the debt crisis in Europe. He resisted calls to ease his deficit-reduction plans, saying it would risk Britain’s “priceless” standing with investors.

A plan to eliminate the structural deficit by 2015 by introducing the deepest public spending cuts since World War II has been the centerpiece of government policy, drawing criticism from the opposition Labour Party and unions, which say they’re leading to stagnation.

Growth Forecasts

The International Monetary Fund cut its forecasts for U.K. economic growth last month to 1.1 percent this year and 1.6 percent in 2012 from previous projections of 1.5 percent and 2.3 percent respectively. U.K. consumer confidence fell to a four- month low in August as Britons grew more pessimistic about the outlook for the economy, Nationwide Building Society said.

Osborne said agreements to prevent the euro-region debt crisis spreading beyond Greece would provide the single largest boost to the U.K. economy, saying the failure to find solutions was proving “debilitating.”

In the U.S., Federal Reserve Chairman Ben S. Bernanke used the term “credit easing” in a January, 2009, speech to describe a policy aimed at reducing credit spreads and “improving the functioning of private credit markets more generally.” The Fed has purchased mortgage-backed securities and U.S. Treasuries, expanding total assets on its balance sheet to $2.85 trillion.

--With assistance from Craig Torres in Washington. Editors: Andrew Atkinson, Eddie Buckle

To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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