The Government is to underwrite billions of pounds of bank lending to business in an attempt to get credit flowing to Britain's cash-strapped small firms.
Chancellor George Osborne will set out details of his much-heralded "credit easing" scheme - described as a "game changer" by Treasury sources - when he delivers his autumn statement on the economy on Tuesday.
Under Mr Osborne's plan the Government will underwrite the banks' borrowing on the commercial money markets, enabling them to borrow more cheaply.
The banks will then pass on the savings to the firms they lend to in the form of lower interest rates.
The scheme - said to be similar to the former Labour government's credit guarantee scheme launched in the wake of the 2008 credit crunch - is aimed at helping small and medium enterprises (SMEs).
For a firm currently taking out a £5 million loan at a typical interest rate of 5%, it would mean they would instead be able to borrow at 4%, saving £50,000 a year in interest payments.
Ministers hope to get the scheme up and running by the beginning of next year, with the intention that it will run for the next two years.
Because the loans are not being made directly by the Government they will not appear on the national balance sheet and taxpayer will only become liable if the banks fail to pay their debts.
A Treasury source said: "We all know that the cost of finance for smaller businesses has risen following the financial crisis. It's a problem people have been trying to solve since 2008, which is why these new schemes are much more radical than anything that has gone before. They should be a game changer for credit for small companies by cutting the cost of finance and over time opening up new options for how it is raised."
In a further move, Mr Osborne will announce that regulated rail fares - such as peak fares and season tickets - will rise by 6.2% next year (RPI inflation of 5.2% +1%) rather than the planned 8.2% (RPI +1%) increase.
Courtesy of London Evening Standard
Monday 28 November 2011
Thursday 17 November 2011
"Billions more likely in QE as Mervyn King sounds new alert"
The Bank of England is gearing up to pump billions more into Britain's economy amid further dire warnings from Governor Sir Mervyn King over the health of the recovery.
Today's quarterly forecasts underlined worsening gloom for the UK as a result of Europe's debt crisis, paving the way for more quantitative easing to kick-start a stalling economy, possibly as soon as next month.
The Bank is already pumping an extra £75 billion into the economy after its latest round of QE last month. But it now reckons prospects are so poor inflation will still come in below its 2% target in two years' time. The latest forecasts signal growth of just 1% next year, with inflation falling rapidly from the current 5% to about 1.2% by 2013.
Interest rates have been at their current 0.5% record low since March 2009, when the Bank launched its first £200 billion round of QE.
Capital Economics economist Samuel Tombs said: "The report both endorses market expectations that rates will stay on hold for the foreseeable future and suggests that more policy loosening will yet be needed.
"What's more, even the MPC's [Bank of England monetary policy committee's] downgraded growth forecasts still look optimistic to us - we expect zero growth next year. We had pencilled in another £75 billion of QE in February, but if the economic news over the next couple of weeks remains weak, the MPC might feel compelled to announce extra support as soon as next month."
The Governor again underlined that Europe remains the UK's biggest threat as the woes of the nation's biggest export market hamper efforts at recovery. He stressed today that the Bank's forecasts do not fully factor in any substantial escalation of the crisis, implying that there could be even worse pain ahead for the UK economy
"The uncertainty that has been created in the European and world economy by recent events must have, or is likely to have, some potential impact on the pace at which businesses will make investment projects - will they postpone projects - and on the pace of household spending. That is almost impossible to forecast, but it is something that we shall watch very carefully," King warned.
The eurozone managed growth of just 0.2% between July and September, but is set to fall back into recession in the final quarter with a knock-on impact on the UK.
Markit economist Chris Williamson warned: "There is clearly a significant risk of a contraction in the final quarter of this year and early next year, with a steep downturn possible if the problems in the euro area worsen."
Courtesy of London Evening Post
Today's quarterly forecasts underlined worsening gloom for the UK as a result of Europe's debt crisis, paving the way for more quantitative easing to kick-start a stalling economy, possibly as soon as next month.
The Bank is already pumping an extra £75 billion into the economy after its latest round of QE last month. But it now reckons prospects are so poor inflation will still come in below its 2% target in two years' time. The latest forecasts signal growth of just 1% next year, with inflation falling rapidly from the current 5% to about 1.2% by 2013.
Interest rates have been at their current 0.5% record low since March 2009, when the Bank launched its first £200 billion round of QE.
Capital Economics economist Samuel Tombs said: "The report both endorses market expectations that rates will stay on hold for the foreseeable future and suggests that more policy loosening will yet be needed.
"What's more, even the MPC's [Bank of England monetary policy committee's] downgraded growth forecasts still look optimistic to us - we expect zero growth next year. We had pencilled in another £75 billion of QE in February, but if the economic news over the next couple of weeks remains weak, the MPC might feel compelled to announce extra support as soon as next month."
The Governor again underlined that Europe remains the UK's biggest threat as the woes of the nation's biggest export market hamper efforts at recovery. He stressed today that the Bank's forecasts do not fully factor in any substantial escalation of the crisis, implying that there could be even worse pain ahead for the UK economy
"The uncertainty that has been created in the European and world economy by recent events must have, or is likely to have, some potential impact on the pace at which businesses will make investment projects - will they postpone projects - and on the pace of household spending. That is almost impossible to forecast, but it is something that we shall watch very carefully," King warned.
The eurozone managed growth of just 0.2% between July and September, but is set to fall back into recession in the final quarter with a knock-on impact on the UK.
Markit economist Chris Williamson warned: "There is clearly a significant risk of a contraction in the final quarter of this year and early next year, with a steep downturn possible if the problems in the euro area worsen."
Courtesy of London Evening Post
Wednesday 2 November 2011
"Greece fears and UK data put markets into tailspin"
Panic over a nightmare Greek default gripped global stock markets today as dire news from Britain's manufacturers threatened to derail the recovery.
Premier George Panpandreou's shock decision to put Greece's latest bailout to a referendum triggered fears that the beleaguered nation could default and crash out of the euro if the deal is rejected by the people.
The potential collapse of the rescue sent markets into a tailspin with London's FTSE 100 benchmark falling 2.8%, and France's CAC 40 and Germany's Dax both tumbling by 4%. The news came as data showed the UK achieved growth of 0.5% between July and September. However, the figures also revealed the biggest slump in manufacturing for more than two years, stoking fears that the UK's fragile recovery could crash again in the final quarter of the year.
European leaders agreed a second €130 billion (£112 billion) bailout for Greece ¬- including a 50% hit for private bond investors - last week. But the bailout also spells more pain for the hard-pressed population and a recent poll signalled some 60% of Greeks could spurn the deal in what will effectively become a referendum on their membership of the single currency.Greece is already dependent on funds from the 'troika' of the European Central Bank, IMF and European Union to prevent a catastrophic default.
If the nation votes no, Citigroup analyst Jurgen Michels warned: "Greece is likely to run out of funding quickly and would probably move into a disorderly default procedure.
"As Greek banks would run out of collateral, they would also lose the funding of the ECB. As a consequence, Greece would probably be forced to leave the Monetary Union."
The fresh eurozone chaos sent the borrowing costs of debt-laden Italy soaring to fresh records today, triggering more bond-buying from the ECB.
The impact of the crisis was felt again by British manufacturers in October, according to the Chartered Institute for Purchasing and Supply's latest survey. The index, where a score over 50 indicates growth, plunged to 47.4 as new orders shrank at their fastest pace since March 2009 and export orders shrank for the third month in a row.
Markit chief economist Chris Williamson warned of aggressive job cutting from manufacturers to come as fears over Italy and a Greek referendum intensify Europe's woes. He said: "The UK economy faces a significant risk of contracting in the final quarter of the year."
Courtesy of London Evening Standard
Premier George Panpandreou's shock decision to put Greece's latest bailout to a referendum triggered fears that the beleaguered nation could default and crash out of the euro if the deal is rejected by the people.
The potential collapse of the rescue sent markets into a tailspin with London's FTSE 100 benchmark falling 2.8%, and France's CAC 40 and Germany's Dax both tumbling by 4%. The news came as data showed the UK achieved growth of 0.5% between July and September. However, the figures also revealed the biggest slump in manufacturing for more than two years, stoking fears that the UK's fragile recovery could crash again in the final quarter of the year.
European leaders agreed a second €130 billion (£112 billion) bailout for Greece ¬- including a 50% hit for private bond investors - last week. But the bailout also spells more pain for the hard-pressed population and a recent poll signalled some 60% of Greeks could spurn the deal in what will effectively become a referendum on their membership of the single currency.Greece is already dependent on funds from the 'troika' of the European Central Bank, IMF and European Union to prevent a catastrophic default.
If the nation votes no, Citigroup analyst Jurgen Michels warned: "Greece is likely to run out of funding quickly and would probably move into a disorderly default procedure.
"As Greek banks would run out of collateral, they would also lose the funding of the ECB. As a consequence, Greece would probably be forced to leave the Monetary Union."
The fresh eurozone chaos sent the borrowing costs of debt-laden Italy soaring to fresh records today, triggering more bond-buying from the ECB.
The impact of the crisis was felt again by British manufacturers in October, according to the Chartered Institute for Purchasing and Supply's latest survey. The index, where a score over 50 indicates growth, plunged to 47.4 as new orders shrank at their fastest pace since March 2009 and export orders shrank for the third month in a row.
Markit chief economist Chris Williamson warned of aggressive job cutting from manufacturers to come as fears over Italy and a Greek referendum intensify Europe's woes. He said: "The UK economy faces a significant risk of contracting in the final quarter of the year."
Courtesy of London Evening Standard
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