There may be even more trouble ahead – last week’s announcement of Subsidised Loans

Last Thursday, George Osborne, Chancellor of the Exchequer, and the Governor of the Bank of England, Mervyn King, jointly announced a new measure to stimulate economic growth. They also, importantly, did not rule out more quantitative easing.

Mr King prescribed a recipe of subsidised credit, estimated to be worth about £80bn –already known as ‘funding for lending‘. Technically, it consists of auctions by the Bank of England of loans totalling a minimum of £5bn a month for 6 months at a minimum rate of the Bank Rate plus 25 basis points (currently 0.75 per cent).

They feel this is required because the volume of loans to non-financial companies has been falling since the onset of the crisis: the chart below shows that less money has been loaned than the month before, almost every month, since February 2009.

Monthly changes

Continue reading “There may be even more trouble ahead – last week’s announcement of Subsidised Loans”