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George Osborne Proposes Lending To UK Companies

by Jim ONeil on October 6, 2011

in business loans

As concerns grow regarding the UK economy, Chancellor George Osborne is proposing that public funds be lent to British companies struggling to qualify for bank loans. Under the proposal, the Treasury would sell government or Treasury bonds to purchase bonds issued by small and medium sized companies. Billions of pounds would be involved in this credit easing program.

It is clear that the European debt crisis could make a severe impression on the UK banking system. The credit crisis occurred three years ago and companies are still being denied access to loans bank issued featuring reasonable terms. Under the new proposal, one possible approach would involve instructing the Bank of England to purchase corporate bonds.

The economy has changed little in the past year and Mr. Osborne has no plans to slow down the deficit reduction. He believes credit easing is the best way to stimulate the economy. It is a change from his previous quantitative easing approach that focused on the Bank of England making new money to purchase government bonds.

However, Mr. Osborne said he would approve reactivation of a quantitative easing program. Experts expect policy makers to do this during their meeting next week. The new credit easing plan enables authorities to purchase assets of the private sector in order to increase credit and liquidity within the economy. According to National Institute of Economic and Social Research Director Jonathan Portes, many people have requested this approach, which he feels is long overdue.

Credit easing could help prevent a second credit crisis, said Mr. Osborne. He also noted that it will provide British businesses with a needed boost, helping to solve the ongoing issue of inadequate long-term investments in small businesses and enterprises. The budget deficit will not be augmented by this program and the government can make progress toward its Project Merlin lending goals.

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