British finance minister George Osborne flagged a new scheme on Monday to funnel lending directly to companies starved of credit by banks, in an attempt to get economic growth back on track without breaking his pledge to cut public spending.
Facing appeals from across the political spectrum to do more to prop up growth, Osborne's determination to stay the course on fiscal cutbacks got support from rating agency Standard & Poor's, which warned against any let-up in the drive to reduce Britain's budget deficit.
His speech to the Conservative Party's annual conference frustrated some colleagues' calls for lower taxes or more spending, but pointed to ways both the Bank of England and the Treasury could support lending. He said the government's tough austerity plan allowed the Bank to keep monetary policy loose and that he would give the green light for more asset purchases if the BoE decided to launch a second round of quantitative easing.
But he also flagged a new scheme by the Treasury to help firms get access to cheap borrowing. The Treasury was now looking into various options, many of which would involve the Bank of England, Treasury sources said. Possible options were the direct purchase of corporate bonds with the Treasury underwriting the credit risk, co-funding bank loans to small and medium-sized companies, or encouraging the creation of a secondary market for securitised SME loans. Such a scheme could involve several billions of pounds, which would not show up as public debt as they were backed by assets. The government would provide more detailed plans at its autumn statement, following the Office for Budget Responsibility's update of the forecasts for growth and public finances at the end of November.