There’s been a lending bonanza, yet investors see dangers in low priced junk bonds.
Read more: Waiting for the bond bubble to pop
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There’s been a lending bonanza, yet investors see dangers in low priced junk bonds.
Read more: Waiting for the bond bubble to pop
In this week’s Your Money, Declan Curry looks at how changes to the benefits system will change household income and how you could get more for your money by lending cash directly to companies.
See the original post here: VIDEO: Your Money: The big benefits shake up
The Bank of England announces plans to expand a lending scheme designed to help businesses and households.
Read the original: Small business lending plan extended
Chancellor to beef up £80bn loans scheme amid US calls for Britain to tone down austerity measures
George Osborne will announce an expansion of the Bank of England’s £80bn funding for lending scheme (FLS) ahead of a visit to Britain by the International Monetary Fund next month, as he seeks to head off calls for a softening of government austerity plans.
High-street banks are to be given added incentives to extend credit to small and medium-sized businesses in an expansion to the scheme, due in the next fortnight.
An IMF mission arrives in London for two weeks of talks on 8 May and Osborne plans to launch the beefed-up FLS in an attempt to persuade the fund that the coalition can boost growth without doing a U-turn on its deficit-reduction strategy. Discussions between the Treasury and the Bank have concluded that high-street lenders need further inducement to pass on the benefits of subsidised lending to companies.
The FLS was launched last August and offered subsidised credit to high street banks, provided they passed on the benefits to households and businesses. Figures so far have shown a pick-up in lending for mortgages but no increase in business lending. The Bank always envisaged that it would take time for loans to SMEs to increase, but minutes of the April meeting of its nine-strong monetary policy committee, released last week, signalled support for an expansion of the scheme.
With the business secretary, Vince Cable also pressing for action to help SMEs, Osborne has been keen for the Bank to increase the generosity of the FLS, but the need to target help to the corporate sector has been given added urgency by the imminent arrival of the IMF for its annual article IV consultation.
Last week, the IMF embarrassed the chancellor by urging a rethink of a tax and spending policy that will involve cutting Britain’s structural budget deficit by 1% of national output this year.
The fund has told the chancellor that it is worried about the weakness of demand in the UK and will be asking whether he has any alternatives to changes his budgetary stance.
The chancellor was stung by last week’s criticism from the fund. He argued that he had already taken steps in the budget to boost growth. He pointed out to Christine Lagarde, the fund’s managing director, during talks in Washington last week that the government had already adopted a flexible approach to austerity by pushing back the timetable by two years for debt to peak as a share of national output.
But the IMF is convinced that the UK is still operating well below its full potential. It is keen to discover in its talks next month why the economy has failed to respond to four years of unprecedented monetary stimulus. During this time bank rates have been pegged at 0.5% and the Bank has created £375bn of electronic money through its quantitative easing programme.
The fund believes that its rich-country members have generally been over-hasty in their aggressive approach to deficit reduction, and that less of the fiscal pain should have been front-loaded.On Saturday, a communique released at the end of a meeting of the IMF’s policymaking committee said that where country circumstances allowed, governments should avoid responding to weak growth with fresh attempts to cut deficits, focus on the underlying health of public finances once the effects of the ups and downs of the economic cycle were taken into account, and allow borrowing to rise if activity was depressed.
It added that monetary policy alone was not sufficient to produce a lasting global recovery, noting that a credible medium-term plan to improve the state of public finances together with structural reform were needed.
“Eventual exit from monetary expansion will need to be carefully managed and clearly communicated”, it said, reflecting widespread concerns in Washington last week that central banks faced a tricky task when the time came to raise interest rates and to sell the government bonds purchased under QE programmes.
George Osborne is set to boost lending to small businesses as he faces growing pressure over his austerity policies.
Lending to UK businesses fell by £4.8bn in the three months to February, the Bank of England says, but the mortgage market is more stable.
Here is the original post: Lending to business falls by £4.8bn
Credit card insurer CPP announces extension to its lending facility in the wake of an agreement to to sell its US arm for £26.1m.
LEEDS, UNITED KINGDOM–(Marketwire – March 20, 2013) – Callcredit Information Group has today (20th March 2013) announced its intention to enable real-time data sharing across its portfolio of lending clients.
Read the original: Callcredit Information Group Announces Real-Time Data Sharing Initiative
The MPC held the base rate and refused to expand QE this month. But a more radical approach to stimulating the economy is still on the cards. Here’s how it might be done
The Bank of England resisted pressure to inject billions of pounds into the economy on Thursday, amid mounting speculation that its remit could be changed to encourage policymakers to focus on growth rather than inflation.
The monetary policy committee (MPC) voted against expanding its £375bn quantitative easing (QE) programme and kept interest rates at their historic four-year low of 0.5%.
The MPC announcement suggests outgoing bank governor Sir Mervyn King has been outvoted two months running for the first time in his 10 years at the helm of the Bank. At the February MPC meeting, King and two others voted to increase QE by £25bn to £400bn.
Speculation that the arrival of Mark Carneyin the summer to replace King will be accompanied by a broader remit for the MPC has gathered pace since the Canadian central bank chief made it clear he favours adopting unorthodox measures to stimulate growth.
The MPC is currently required to keep inflation at 2% over the “medium term”. This phrase has been interpreted as meaning between two and three years. The committee must also pay regard to employment and growth.
The Treasury is currently conducting its annual review of the remit, and it is possible that inflation, which is expected to remain above 2% for the next couple of years, will be de-emphasised in favour of a growth target, in a victory for the “market monetarists” – successors to Milton Friedman who believe that anchoring the market’s expectations of long-term interest rates should be the MPC’s main aim.
For now the committee’s main tool is QE and the decision over whether to increase the money-printing has probably been delayed rather than abandoned completely; many predict an expansion of the programme in the next two or three months.
Howard Archer of IHS Global Insight said: “The Bank of England’s decision to hold off from stimulative action was highly likely the result of a tightly split vote and we strongly suspect that the MPC will act in the second quarter and very possibly as soon as April.”
Other commentators were wary of any increase. David Kern, chief economist at the British Chambers of Commerce, said: “We believe this would be misguided, as more QE would provide only marginal benefits for the real economy, while heightening risks of financial distortions, bubbles and higher inflation.”
But last month the MPC discussed embracing a broader set of policy tools, seven of which are discussed below:
The Bank of England has “printed” £375bn of extra money since March 2009 and spent all of it on buying government bonds from banks and insurers in the hope they will lend the proceeds to other private sector companies.
The Bank could follow the example of the US Federal Reserve and buy other, more risky, assets, such as home loans. There are commercially traded bundles of mortgages, known as mortgage-backed securities, sitting in bank reserves; the central bank could relieve lenders of these mortgages, allowing them to lend more to ordinary customers. Capital Economics believes that under the current remit QE could rise to £500bn by the end of next year. A growth target, or a target to achieve a set level of GDP, could accelerate that process.
The Treasury has backed an £80bn scheme that offers high street banks and building societies access to money at 0.5% as long as they lend it to customers at a discounted rate. Some banks, like Barclays, have lent money, while others have stashed the cash – Royal Bank of Scotland, Lloyds and Santander being the largest. Funding for Lending could be expanded and made even cheaper. Non-deposit-taking lenders could be included. But when only a quarter of the £80bn has so far found its way into the system, it still has some way to go before a top-up is needed.
A move from 0.5% to 0.25% would mimic the Federal Reserve. Or a 0% rate would create a clear gap between the UK and continental Europe, where base rates are 0.75%. Base rate tracker mortgages would come down in price. However, the suspicion is that most mortgage products would stay the same and the only beneficiary would be the profit margins of high street lenders.
Both Funding for Lending and QE are carrots. A negative interest rate is a big stick. Deputy governor Paul Tucker is tempted to make banks pay to deposit money at the central bank because too many of them are adopting a safety-first policy rather than lending to businesses.
Unfortunately, lots of mortgage products track the 0.5% base rate, so if the base rate became -0.5%, banks would be forced to cut the mortgage rate and lose money. Tucker believes it may be possible to apply the -0.5% to some high street bank reserves and set aside the cash that supports existing mortgage lending. Complex and tricky.
Tucker also says that big corporations, which are sitting on piles of unspent profits, could make loans to their suppliers. The loans, which he calls “working capital instruments”, would support investment by small and medium-sized firms and be underwritten in some form by the central bank. Tucker is looking around for money that businesses can access, which is logical, but maybe small businesses would benefit more from big firms simply paying them on time.
Lord Turner, the outgoing chairman of the Financial Services Authority who lost out to Carney in the governor race, has floated the idea of the Bank directly funding the government. The plan would allow chancellor George Osborne to announce multibillion-pound spending on infrastructure projects. Like a helicopter dropping cash from the sky, the central bank would supply the funds rather than the Treasury running up bigger current accounts deficits – an off-balance-sheet exercise that could keep the ratings agencies at bay.
Once there was a thriving commercial bill market, but it died out. It could be revived to provide an avenue for the private sector to access loans. It works like this: two businesses are trading; one owes the other money. The debtor might give the other a bill saying they will pay in three months. This bill can then be traded.