As pressure mounts on British Prime Minister David Cameron to address growth concerns and recession concerns, comes word that the government is planning to introduce a Ã¢â‚¬Å“massiveÃ¢â‚¬Â credit easing initiative. In his speech today before the Confederation of British Industry, Cameron noted that British companies continue to find it difficult to arrange financing in order to expand operations.
Ã¢â‚¬Å“If we are to build a new model of growth, we need to give a massive boost to enterprise, entrepreneurship, and business creation. Put simply, Britain must become one of the best places to do business on the planet.Ã¢â‚¬Â
The challenge facing Cameron and the entire coalition government, is how to continue to work towards balancing the budget, without stifling growth. CameronÃ¢â‚¬â„¢s approach to easing credit conditions involve selling Treasury bills and using the proceeds of the sale to purchase corporate bonds. This is expected to provide businesses seeking loans with alternative financing options than just the commercial banking system which continues to keep a tight reign on assets. Smaller business in particular are expected to benefit from this initiative.
Since winning the election a year and a half ago Ã¢â‚¬â€œ but with only a minority Ã¢â‚¬â€œ Cameron has managed to cobble together a coalition government with the support of Simon Clegg and the Liberal Democratic party. Central to CameronÃ¢â‚¬â„¢s campaign platform was his pledge to implement a five-year program to reduce the countryÃ¢â‚¬â„¢s burgeoning deficit to 9 percent of the nationÃ¢â‚¬â„¢s Gross Domestic Product. Naturally, critics felt the move to be too drastic claiming the pullback in government spending would be disastrous for the economy.
Indeed, growth in the UK has continued to disappoint growing by just 0.1 percent in the second quarter. The third quarter has recovered considerably, however, with GDP expanding by 0.5 percent. While the government suggests this is evidence of a turnaround, naysayers continue to predict that growth could turn negative heading into the new year.
In his address, Cameron did draw attention to the crisis in Europe highlighting concerns that the British economy could suffer if the Eurozone economy contracts further as many expect. In fact, Cameron uses this possibility as further evidence that the government must take bold action now to offset the potential for a Eurozone recession.
Chancellor of the Exchequer, George Osborne, is scheduled to address Parliament on November 29th where it is expected he will provide further details regarding the timing, the amount to be committed to the program, and the guidelines for business participation.
Notable Lines From CameronÃ¢â‚¬â„¢s Address
Ã¢â‚¬Å“First, we are recovering from a debt crisis not a traditional recession. People who argue that traditional fiscal stimulus, extra spending funded by even more borrowing, is the right answer are not just wrong Ã¢â‚¬â€œ but dangerously wrong.Ã¢â‚¬Â
Ã¢â‚¬Å“Yes Ã¢â‚¬â€œ there are some who seriously try to argue that additional spending and borrowing will actually lead to less debt in the end despite the fact that no evidence supports this assertion. These arguments are just a way of avoiding difficult decisions the kind of something for nothing economics that got us into this mess which is why no indebted European country is taking this path.Ã¢â‚¬Â