The British government unveiled plans on Monday to tap pension funds for the lion's share of an investment of up to 30 billion pounds in big building projects to help to revitalise a stagnant economy forecast to slip back into recession next year. (What they should be doing is getting the housing market on the move and employment, building projects on their own will not get the economy moving out of recession)
The measures are the latest in a drip feed of government announcements ahead of Chancellor George Osborne's autumn statement on Tuesday when growth forecasts will be cut as the EU’s euro zone crisis bites.
The OECD forecast on Monday that England would suffer a modest recession next year, urging the Bank of England to expand its asset purchase programme designed at shoring up a faltering economy.
Adding to the gloom, Greedy British retail sales fell at their fastest pace in 2-1/2 years in November, a survey by business lobby the CBI showed.
The Conservative-led coalition has made it its priority to erase a budget deficit that peaked at 11 per cent of national output.
It is cutting spending by around a fifth across most government departments, but the domestic squeeze has coincided with plunging demand from continental European markets hit by the Eurozone crisis. (And what is should be doing is cutting back on all its EU aid and other aid areas and using this money to help offset deficits)
The unemployment level has hit a 15-year high and the British government will fail to hit a target of wiping out the structural deficit by 2015, when the next election must be held.
Responding to industry calls to help companies to access cash, Osborne announced measures on Sunday to underwrite 20 billion pounds of loans to smaller companies which are struggling to get credit, they should also go further on underwriting low income mortgages at 100% and not just on new builds as there isn’t enough new homes being built so all property’s should come under the scheme. (If you have three years or more references of paying rent privately and a tenant of good standing and on low incomes you should be guaranteed a 100% mortgage)
Analysts backed the plans but said that they would take time to feed through into the economy.
"Measures to reprioritise capital spending and start the credit easing programme are welcome, but they are coming too late to do much about the impending recession in the UK," BNP Paribas economist David Tinsley said in a note.
"With the domestic demand in the UK already very weak heading into the crisis, it is hard to see where any growth next year will come from."
Treasury Minister Danny Alexander said that the government would reallocate 5 billion pounds of spending to capital projects by 2015 but crucially added that a deficit-cutting coalition would not borrow any more.
"Through working with English pension funds, we're identifying ways to unlock around 20 billion pounds of pension fund investment to go into privately funded infrastructure," Alexander told BBC Radio 4.
Osborne said the government could invest up to 30 billion pounds in schools, roads and rail projects, a much needed boost for the country's creaking infrastructure.
He got a boost on Monday when the head of China's sovereign wealth fund said the country was keen to invest in the ailing infrastructure of Western countries, especially Britain.
"Britain has got to get away from the quick-fix, debt solutions that got us into this mess," Osborne said.
"We've got to weather the current economic storm but we've got to lay the foundation for a stronger economic future."
Pension funds are looking to ensure better returns after yields on British government bonds or gilts fell following buying by the Bank of England and by investors seeking a haven from Eurozone turmoil.
Pension funds saw great potential in the scheme but again its effects would take time to work through.
"This could be a real win-win. The UK desperately needs to update its infrastructure, and pension funds are looking for inflation-linked, long-term investments," said Joanne Segars, chief executive of the National Association of Pension Funds.
"Pension funds hold over a trillion pounds in assets, but only around 2 per cent of that is invested in infrastructure. There's the potential for that to be much higher."
Analysts at Panmure Gordon said the additional investment would provide a boost to British construction and engineering firms including Balfour Beatty (BALF.L), WS Atkins (ATKW.L), Kier (KIE.L) and Costain (COSG.L).