The Bank of England is releasing funds to high-street banks to ramp up lending to businesses. Image courtesy of: Steve Woods/rgbstock.com
The Bank of England
will provide financial support to high-street banks in order to restore economic confidence and ramp up lending to businesses.
Governor Sir Mervyn King said the package, which will provide billions of pounds of additional credit in association with the Government, was in response to the worsening economic outlook.
In addition to this credit, banks will also gain access to a short-term capital that will help them deal with “exceptional market stresses,” something George Osborne said would “inject confidence.”
Shadow Chancellor Ed Balls said the measure was insufficient to help unless the Government reconsidered its austerity plans
Bank shares rose sharply in response to the Bank of England’s announcement. RBS
showed the biggest rise at nearly eight percent, with Lloyds
up 5.2 percent and 4.2 percent respectively.
In his annual Mansion House
speech, the Chancellor said the financial package would “support the flow of credit to where it is needed in the real economy.”
He said: "We are not powerless in the face of the eurozone debt storm. Together we can deploy new firepower to defend our economy from the crisis on our doorstep.”
Sir Mervyn was also in attendance at Mansion House, and said that the Eurozone debt crisis was responsible for elevating the costs of small business loans by pushing up bank expenditure.
The Bank of England has injected £325bn into the economy through its quantitative easing
(QE) programmes. The new scheme is a more direct attempt to stimulate economic growth.
Sir Mervyn said that he hoped the scheme would be available to banks “within weeks,” a positive sign not only for the banking industry but for small businesses across the country.