Bank of England to pump £100bn of emergency cash into economy
Good morning and welcome back to our rolling coverage of the eurozone debt crisis and world economy. The weekend elections in Greece will continue to weigh on markets today, while Spain’s woes continue to worse, with its borrowing costs rising through 7% on the 10-year measure yesterday. They were at 6.9% this morning.
The Mansion House speeches in the City are usually a fairly boring affair. Not so last night. Bank of England governor Sir Mervyn King and chancellor George Osborne unveiled two new initiatives to help banks and boost business lending. The emergency measures are an indication of how worried they are about the economic situation. Osborne warned that the “debt storm” on the continent had left the UK and the rest of Europe facing their worst peacetime economic crisis.
The Bank of England will start pumping up to £100bn of cheap credit into the UK economy – at least £5bn a month – within the next few days. This is on top of its £325bn quantitative easing (QE) programme. The schedule for the Extended Collateral Term Repo Facility auctions – which are reminiscent of the ECB’s LTROs – will be set out at 8am. And under a new “funding for lending” scheme, worth up to £80bn, the Bank will provide cheap loans to banks, at below market rates, in exchange for the banks lending the money to households and small and medium-sized businesses.
King also dropped a heavy hint that further QE could be on its way: “The case for further monetary easing is growing.”
Simon Hayes at Barclays Capital said:
It is clear from governor King’s speech that he has become more gravely concerned about the economic outlook, even over just the past few weeks. Heightened uncertainty about the euro area is increasingly infecting the UK outlook through tighter credit conditions and low confidence among businesses and households. Not only has this prompted the new announcements on banking sector support, but it also implies a much increased likelihood that the MPC will sanction more QE.