F&C director of global strategy Ted Scott has backed Chancellor George Osborne’s plans for “credit easing” to support smaller and medium-sized companies.
Yesterday, at the Conservative conference in Manchester, Osborne announced a new programme of credit easing to support business lending.
Credit easing refers to buying or guaranteeing private sector assets like corporate bonds or SME loans in order to inject money directly into a particular part of the corporate sector and get credit flowing.
Treasury officials say the process is essentially a more targeted version of quantitative easing, with the Government either seeking to find people buying corporate bonds or SME loans and encouraging them to buy more, or buying them directly and creating demand.
The aim of the policy is to free up credit in specific sectors of the market. Policymakers believe this will help avoid future ‘credit crunches’.
Chancellor George Osborne will provide further details of how credit easing will work in his autumn statement on November 29.
Scott says: “Businesses, particularly smaller businesses are finding it difficult to obtain credit from the banks. Larger companies tend to be okay. Banks are so fearful of corporate risk that they are loathe to extend credit to smaller businesses.”
He adds: “The liquidity of smaller companies makes it difficult for them as well. It is hard to sell shares and if you get someone aggressively selling shares, that could have quite a big impact on the share price.”
“However, it will not have a huge impact on the corporate bond market overall, as it is only for smaller companies.”