Britain plans stimulus to fight off recession blues
The British government and the Bank of England have unveiled a 140 billion pounds stimulus to boost lending by banks to companies and the housing sector in a bid to rid the economy of the recession blues.
The move comes as the UK economy has stalled, with recent indicators pointing to the country remaining in recession for a third quarter.
In his annual Mansion House speech Thursday, Chancellor George Osborne unveiled a 140 billion pounds Masterplan to fend off the growing eurozone crisis, providing fresh hope that the country can put the economy back on track.
Osborne told bankers and industrialists at the annual dinner that the stimulus packages would "support the flow of credit to where it is needed in the real economy".
The estimated 140 billion pounds plan, Osborne said indicated that "we are not powerless in the face of the eurozone debt storm. Together we can deploy new firepower to defend our economy from the crisis on our doorstep."
The 140 billion pounds stimulus is separate to the Bank of England's 325billion pounds quantitative easing scheme, which has seen it buy government debt from banks.
Bank Governor Sir Mervyn King, also speaking at Mansion House, said the eurozone debt crisis had pushed up funding costs in the banking sector, which in turn meant the cost of borrowing for businesses and individuals had risen.
The crisis had also created a "large black cloud of uncertainty" over the global economy, meaning companies and households were cutting back on spending.
To counter the dip in spending, the Bank Governor said "The bank and the Treasury are working together on a 'funding for lending' scheme that would provide funding to banks for an extended period of several years, at rates below current market rates and linked to the performance of banks in sustaining or expanding their lending to the U.K. non-financial sector."
The measures would "support the banking sector, and provide it with incentives to increase lending to the real economy," he added.
Experts however said the schemes unveiled by Bank Governor would not be enough.
The Institute of Directors' chief economist Graeme Leach said: "Facing a bombardment from the eurozone, the Chancellor and Governor are calling up the reserves. The extended liquidity and funding for lending schemes are welcome, but limited.
"The core problem remains. Companies alarmed by the euro crisis will not be eager to borrow regardless of the cost," Leach said.
The Evening Standard meanwhile reported Friday that within weeks two more schemes to boost the ailing British economy are expected to be unveiled.
Quoting unidentified Treasure sources, the evening tabloid said efforts to boost house-building and major infrastructure projects by underwriting lending will be announced in "the next month or so".
Bank shares jumped on the announcement of cheaper lending for businesses and homeowners. Royal Bank of Scotland and Lloyds shares leaped almost four per cent, while Barclays was up 2.75 per cent. Treasury Minister Mark Hoban said Friday morning: "We need to make this work."
Labour's Shadow Chancellor Ed Balls however expressed concerns about the measures not being enough to help without the Government also changing course on its austerity plans.
Tory Treasury select committee chairman Andrew Tyrie, however, welcomed the extra liquidity for banks. Tyries has been pushing for it to come earlier.
Details of the government schemes are expected to be announced over the weekend.
Source: Britain News.Net
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