U.K. Prime Minister David Cameron pledged a “massive” program of credit easing to help spur the economy as his government drives through its plan to narrow the budget deficit.
Chancellor of the Exchequer George Osborne will use his statement to Parliament on Nov. 29 to set out full details of the program to aid companies finding it hard to obtain bank finance, Cameron said in a speech in London today.
“I know that it can still be a nightmare for companies wanting to borrow money,” Cameron told the Confederation of British Industry annual conference. Credit easing “will use the strength of the government’s balance sheet to pump billions of pounds into reducing the cost of loans for small and medium sized businesses.”
Cameron is under mounting pressure to do more to spur an economy at risk of sliding back into recession as Europe’s debt crisis intensifies. The Bank of England cut its growth forecasts last week, saying output was likely to remain flat until the middle of 2012. Unemployment hit a 15-year high 8.3 percent in the third quarter.
Credit easing, proposed by Osborne in early October, envisages the Treasury selling bills and using the proceeds to buy billions of pounds of corporate bonds or packages of securitized loans made to small companies, possibly using the Bank of England as an agent.
The central bank has focused almost entirely on government bonds since its asset-buying program began in March 2009. Corporate debt accounts for less than 1 billion pounds ($1.57 billion) of securities purchased, compared with 229 billion pounds of government gilts.
Cameron has made his five-year plan to eliminate the bulk of a deficit equal to 9 percent of gross domestic product the centrepiece of his economic strategy, rebuffing criticism that the cuts are hobbling growth. Only Greece, Ireland, Portugal and Iceland face a tighter fiscal squeeze among advanced economies, according to the International Monetary Fund.
Cameron rejected calls from the opposition Labour Party to ease the pace of deficit reduction, saying those who argue for extra fiscal stimulus are “dangerously wrong.”
“The fact that the markets are not convinced that euro zone countries are able to pay their debts is what lies behind the euro-zone crisis, and the biggest immediate boost to British growth would be a clear resolution of that crisis,” he said. “So dealing with government deficit must be line one of our plan for recovery.”
Cameron and his Liberal Democrat deputy, Nick Clegg, announced 400 million pounds of spending today to kick-start housebuilding projects stalled because of a lack of development finance.
The government will also underwrite the risk of some lending on newly built homes, Cameron said. The move aims to help first-time buyers get on the property ladder by allowing deposits for house purchases to fall to as little as 5 percent from about 20 percent. The plan will help as many as 100,000 people “who would otherwise be locked out of home ownership,” he said.
Osborne will provide more details of the government’s plans to transform infrastructure projects in the U.K., Cameron said.