18 December 2020
Quantitative Easing and Government support for SMEs
When times are hard for the economy, the Bank of England will usually lower interest rates to encourage people to spend their money rather than save it. If interest rates are low, they won't get such a good return on savings and it also makes borrowing money more affordable. Purchasing boosts the economy by keeping businesses open and people in jobs. As the interest rate is already only just above zero, the Bank of England cannot lower it any further without negative interest rates. So a process called Quantitative Easing is used instead. Read on to find out more...
What is Quantitative Easing?
Quantitative Easing is a digital method of creating more money. No new bank notes are printed, or coins made, but more money is in circulation. The Bank of England must be careful in the level of quantitative easing applied; if too much extra money is added to the economy, the value of the currency drops so low that it is in danger of becoming worthless.
The way in which the Bank of England achieves this is to buy government bonds. A government bond is, at its core, a means by which to lend money to the government. They guarantee to pay it back and pay interest in the meantime. The more government bonds the Bank of England buys, the more demand increases and increased demand leads to an increase in price.
Many loans offered to individuals and businesses base their interest rate on bond prices and a higher bond price usually means a lower interest rate. A lower interest rate on borrowing makes it easier for people to secure credit which fuels spending and thus the economy.
In addition, many investors choose to purchase government bonds as they are considered a safe investment since the UK government has never failed to repay a bond. However, with the Bank of England purchasing bonds and driving the price up, these investors may now find government bonds too expensive and invest in business instead. This also helps the economy to recover.
What are the effects of Quantitative Easing?
In addition to pushing up the price of government bonds, quantitative easing can also increase the price of property and shares. During the last round of quantitative easing in the UK in 2009, this made it more difficult for first-time buyers to get onto the property ladder or for people to build up savings. The price of government bonds is also used to consider how much it will cost to provide a pension in the future. If the government bond prices are higher, then the price of providing a pension is higher too. As a result, quantitative easing may have been - or may be in the future - a factor in closing some pension schemes altogether.
Government support for SMEs
The government runs a number of schemes to help small and medium-sized enterprises (SMEs). Not all support offered is financial, with networking and sources of advice also being key to successful business. In terms of financial support, there are loans available of up to £25,000 for new businesses starting up or existing businesses looking to grow. The British Business Bank’s Finance Hub is a good place to start looking for information.
In terms of advice and support, there are some business support helplines set up for different areas of the UK, as well as Business Representative Organisations (BROs) and UK Trade Associations which are set up for different sectors and easy to search for the right one online. For anyone already in business and looking to grow, there is Innovate UK which supports businesses with development through realising the potential of new ideas by helping them to access funding and research collaboration. Innovate UK also has a Knowledge Transfer Network to connect businesses to finance, expertise, and markets to commercialise their innovation.
We can support you!
We have the knowlege of all types of support available for our clients to access from the government. Get in touch with us today and let us help you and your business during these difficult times. Contact our Director, Nick Bonnello, directly on 0115 964 8860 or email him at email@example.com to find out how we can help you across all areas of your business.
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