Credit Easing

Credit Easing is also known as the national Loan Guarantee Scheme and is intended to create investment amongst small firms (turnover up to £50m). The Treasury is initially making £5bn of loans available which is expected to be used up in 6 months; another £18bn will be made available for a further 18 months. The way the scheme works is the Treasury will guarantee borrowing by banks for these small firms. This will allow the banks to borrow more cheaply than they normally do (expected 1 percentage point lower rate). It is believed that these cheaper loans to businesses will encourage them to borrow and thus invest and take on more staff which will benefit the economy. However it is believed that the effect of this won’t be very large and most large firms have a lot of accumulated cash but are apprehensive to spend it.