Cameron pledges credit easing

BRITISH Prime Minister David Cameron pledged a massive programme 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 the House of Commons on November 29 to set out details of the programme to aid companies finding it hard to obtain bank finance, Mr Cameron said.

“I know that it can still be a nightmare for companies wanting to borrow money,” he told the Confederation of British Industry annual conference yesterday.

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.”

Mr Cameron is under 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 of 8.3% in the third quarter.

Credit easing, proposed by Mr Osborne last month, envisages the Treasury selling bills and using the proceeds to buy billions of pounds of corporate bonds or packages of securitised loans made to small companies, using the Bank of England as an agent.

The bank has focused almost entirely on government bonds since its asset-buying programme began in March 2009. Corporate debt accounts for less than £1 billion (€1.17bn) of securities purchased, compared with £229bn of government gilts.

Mr Cameron has made his five-year plan to eliminate the bulk of a deficit equal to 9% of gross domestic product the centrepiece of his economic strategy, rebuffing criticism that the cuts are hobbling growth.

“The fact that the markets are not convinced that eurozone countries are able to pay their debts is what lies behind the eurozone 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.”

Mr Cameron and his Liberal Democrat deputy, Nick Clegg, announced £400 million of spending yesterday to kick-start house building projects stalled because of a lack of development finance.

The government will also underwrite the risk of some lending on newly built homes, the prime minister 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% from about 20%.

The plan will help as many as 100,000 people “who would otherwise be locked out of home ownership,” he said.