The source told Reuters the measures would include a state guarantee for bank loans, and the government would also announce plans to co-invest in a fund to lend to larger firms.

Chancellor of the Exchequer George Osborne is under intense pressure to find ways to revive an economy that has barely grown for 12 months, while at the same time keeping to his promise not to veer from a strict deficit-cutting austerity program.

The "credit easing" schemes are expected to form the centerpiece of his autumn budget statement to parliament on Nov. 29.

Under the first scheme, the government will guarantee some bank loans to small businesses. The government hopes its backing will also help to reduce the cost to banks of borrowing on the wholesale market, and in turn cut the interest rates firms pay on their loans by up to 1 percentage point.

The guarantee scheme is expected to be up and running early next year. It will be targeted at small firms with a turnover of around 50 million pounds, and will operate along similar lines to a scheme already run by the European Union's European Investment Bank.

The programs aim to cure a shortage of credit in the wake of the 2008 financial crisis that has been a stumbling block to Britain's economic recovery.

Banks have been cautious about lending and firms are reluctant to borrow to invest, due to high interest rates and an uncertain economic outlook.

Participating banks will be required to provide proof that loans are being made to firms.

"We all know that the cost of finance for smaller businesses has risen following the financial crisis," the source said. "(The schemes) should be a game changer for credit for small companies by cutting the cost of finance and over time opening up new options for how it is raised."

Osborne first announced plans for credit easing at his Conservative Party's annual conference last month, amid accusations that the government's Project Merlin scheme, which imposed lending targets on banks, was not working.

The source said the guarantee scheme would have no impact on Britain's national debt, unless the guarantees were called upon.

Because banks would be responsible for selecting the firms they lend to, the government would also not be exposed to credit risk.

Osborne is also expected to announce that the government will co-invest in a new fund to lend to larger businesses, which it hopes to launch next year.

Private-sector investors such as pension funds are expected to invest in the fund, which the source said was aimed at helping firms that are too small to issue their own debt and do not want to rely on banks.

The new vehicle will follow an existing model being used by the M&G Companies Financing Fund, a 1.5 billion-pound fund which is financed with investment from insurance giant Prudential — M&G's parent company — and private sector investors, mostly pension funds.

This fund provides long-term debt finance to large UK companies, with loans ranging from 70-130 million pounds.

Over the longer term, the government hopes to encourage a corporate bond market for medium-sized firms to reduce firms' reliance on banks to meet their financing needs.

Separately, the Financial Times reported that four infrastructure fund managers and UK pension funds with more than 50 billion pounds under management have signed an agreement with the government to invest in schemes such as railways, roads and energy projects.