Government and Bank unveil "new firepower" to boost economy
The government and the Bank of England plan to bolster the UK economy by flooding the banking system with cheap credit in return for lending to businesses.
George Osborne, the chancellor, said “new firepower” will be deployed to defend the economy when speaking in front of a City audience at Mansion House last night.
The package is centred around a “funding for lending” scheme that will see the Bank offer loans at below current market rates to banks in return for their increased lending to companies.
Mervyn King, governor of the Bank of England, who also spoke at the event, said: “It would complement the government’s existing schemes, and tackle the high level of funding costs directly.
“It could, I hope, be in place within a few weeks.”
Osborne said the scheme would “inject new confidence into [the] financial system and support the flow of credit to where it is needed in the real economy”. (article continues below)
In addition to the funding for lending programme, the Bank also today activated the Extended Collateral Term Repo Facility, which offers six-month loans in monthly tranches of at least £5 billion to increase liquidity in the banking system.
The combined value of the packages is expected to amount to about £100 billion.
Osborne said: “The government – with the help of the Bank of England – will not stand on the sidelines and do nothing as the storm gathers.
“We are rolling up our sleeves and doing everything possible to protect British families and firms.”
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