Today, George Osborne has announced a new government scheme, dubbed UK Guarantees, designed to help infrastructure developers obtain access to credit by underwriting them for £50bn worth of investment. One sector in particular that has struggled in recent years is construction, as credit remains difficult to get hold of for large projects.
The chancellor announced the scheme with rhetoric on austerity and fiscal responsibility but it is notable that the scheme has been introduced just a week after the IMF downgraded its forecast for the UK’s economic growth. Mysterious nameless people from Brussels have a habit of passing judgement on Britain’s economy, but the IMF reckons the UK’s economy will grow by just 0.2% in 2012. Given that inflation is at 2.4% (as of yesterday), this means wages are still being eroded daily.
Against this backdrop, you can’t blame the chancellor for trying, and the guarantees scheme makes sense in principle. Firms find it easier to get credit for the big projects, and the government can declare the guarantees as ‘contingent liabilities’, which do not have to be added to the national balance sheet. Furthermore, the scheme comes just a week after the Treasury announced the Funding for Lending Scheme (FLS), which will allow commercial banks access to around £80bn of central bank funds at low rates, as long as they promise to lend to individuals and businesses more freely.
Ultimately, the government is hamstrung by its own austerity programme as far as cash-boosts to the economy are concerned. Although it would be cheaper for the government to borrow the cash itself (even than the construction firms using underwritten loans), adding it to the balance sheet would run contrary to austerity programme and possibly undermine the UK's credit rating. But with these two measures, which at best will mean an extra £130bn real cash being injected into the economy in various ways, let’s hope we start to see some more jobs created and increased productivity.There’s reason to be optimistic: unemployment fell today, inflation fell earlier this week, and Ernst & Young’s ITEM Club said the outlook for economic growth is improving slowly but steadily.
Last but not least, the Bank of England announced earlier this month that another £50bn round of quantitative easing will be introduced this year, although this morning it emerged that the Monetary Policy Committee is split over it. Seven members voted in favour and two against, according to minutes from the latest meeting.
It remains to be seen whether any of Porgie’s schemes (or the BoE’s latest round of QE) will have any real effect in the economy, but at least he’s trying something. For now, we’ll content ourselves with the more positive-sounding figures of the week. Chin up, Britain.