This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.guardian.co.uk/business/2012/jun/15/eurozone-crisis-live-bank-england-emergency-measures

The article has changed 16 times. There is an RSS feed of changes available.

Version 2 Version 3
Eurozone crisis live: Bank of England unveils £100bn to fight eurozone threat Eurozone crisis live: Bank of England unveils £100bn to fight eurozone threat
(40 minutes later)
10.13am: There are some ECB comments this morning - but no hints that the central bank is contemplating further action despite market speculation. ECB policymaker Peter Praet said eurozone countries need to surrender some of their sovereignty if the euro is to survive, adding that the central bank can only provide temporary crisis relief and that governments must tackle the underlying problems.
Further steps will need to be taken in order to supplement the single monetary policy with a more integrated framework for bank supervision, resolution and deposit insurance.
If we are to achieve this, euro area countries will inevitably need to surrender more national sovereignty.
ECB president Mario Draghi said earlier that the ECB has the means to rein in its expansionary monetary policy if needed.
We think we can mop up this excess liquidity wihtout much of a problem simply because this liquidity is in excess.
10.03am: Throwing money at the banks won't solve the economic crisis, says shadow chancellor Ed Balls - agreeing with our readers. The Guardian's political editor Patrick Wintour reports:

The shadow chancellor said the Bank of England's thinking still seemed to be driven by Montagu Norman, the governor who led it through the depression of the 1930s.
He said the measures announced on Thursday night at the Mansion House in London by the chancellor, George Osborne, and the bank's governor, Mervyn King, should have been implemented two years ago and would not work if businesses were not investing.
9.54am: And Howard Archer, chief UK and European economist at IHS Global Insight, says the weak trade data heighten the risk of another GDP contraction in the second quarter.
The April trade data are very disappointing, increasing the risk that net trade will again be negative in the second quarter and that the economy will suffer further contraction, especially as it is handicapped by the extra day's public holiday that resulted from the Queen's Diamond Jubilee celebrations.
9.51am: Vicky Redwood, chief UK economist at Capital Economics, says the poor UK trade and construction figures out this morning will dampen any positive mood following last night's policy announcements.
The deficit with the EU increased, but the main deterioration was actually outside the EU. The driver was a plunge in exports – exported goods volumes to all areas fell by 7.7% m/m. The near-term outlook doesn't look much better, either. Survey measures of export orders have fallen recently, with the CIPS measure now well below the 50 mark. Meanwhile, construction output dropped by 13% m/m in April (although the figures are not seasonally adjusted).
Overall, even if the measures announced last night succeed in easing strains in the banking sector, it is clear that rising bank funding costs are just one constraint on the economic recovery. With the eurozone economy still weakening, the trade figures are only likely to get worse.
9.47am: The latest UK trade figures are out. My colleague Josephine Moulds reports:
A drop in sales of chemicals and cars to non-EU countries left Britain's goods trade gap wider than expected in April, cementing concerns that exporters face a tough year ahead.
The Office for National Statistics said the UK's goods trade deficit widened to £10.1bn, compared with forecasts of a gap of £8.5bn and a deficit of £8.7bn in March. Exports to non-EU countries dropped 10.3%, while imports from those countries slipped back by just 1.9%. Exports to EU countries also dropped 6.8%, while imports fell 3%.
9.31am: Right, here is a round-up of readers' comments on the UK's latest emergency package. Needless to say most of them are sceptical...9.31am: Right, here is a round-up of readers' comments on the UK's latest emergency package. Needless to say most of them are sceptical...
josephinireland says:josephinireland says:
What was announced at the Mansion House last night can be summed up in four words:What was announced at the Mansion House last night can be summed up in four words:
"It helps the banks.""It helps the banks."
One thing is for sure though. If Mr King is this worried, he must know just how bad it really is in Euroland. So much gets hidden from us by TPTB and disables us from making good decisions to protect ourselves.One thing is for sure though. If Mr King is this worried, he must know just how bad it really is in Euroland. So much gets hidden from us by TPTB and disables us from making good decisions to protect ourselves.
I've already moved half my savings to £. The other half is going to CHF as soon as I've opened the account today.I've already moved half my savings to £. The other half is going to CHF as soon as I've opened the account today.
Anyone out there holding Euros, I suggest you move em. This is a red flag.Anyone out there holding Euros, I suggest you move em. This is a red flag.
neilwilson adds:neilwilson adds:
The Bank will lend the money at a minimum of Bank rate, which is currently 0.5%, plus an additional 25 basis points. Which is exactly the same as the uncollateralised overnight facility that all clearing banks have anyway, and the interest rate has no prospect of going anywhere any time soon.The Bank will lend the money at a minimum of Bank rate, which is currently 0.5%, plus an additional 25 basis points. Which is exactly the same as the uncollateralised overnight facility that all clearing banks have anyway, and the interest rate has no prospect of going anywhere any time soon.
So again it is based on the belief that jiggling longer term rates will have some actual effect in the economy.So again it is based on the belief that jiggling longer term rates will have some actual effect in the economy.
The Extended time period facility is only available to those banks hooked up to the Discount Window. Does anybody know if that is a wider set of banks and building societies than the Operational Standing Facility?The Extended time period facility is only available to those banks hooked up to the Discount Window. Does anybody know if that is a wider set of banks and building societies than the Operational Standing Facility?
spiceof says:spiceof says:
So the Bank of England lends further monies to the private banking sector hoping that some of that cash might be lent out to the business sector. We've been here before, all smoke and mirrors, just another way of keeping the banks going.So the Bank of England lends further monies to the private banking sector hoping that some of that cash might be lent out to the business sector. We've been here before, all smoke and mirrors, just another way of keeping the banks going.
Hyperzeitgeist adds:Hyperzeitgeist adds:
This is just the beginning of the 'endgame'. When all else has failed the central bankers and their political masters know no other solution than to printt money. In a purely fiat based system the only outcome will be to carry on printing until that currency is worthless. This is just the beginning of the 'endgame'. When all else has failed the central bankers and their political masters know no other solution than to print money. In a purely fiat based system the only outcome will be to carry on printing until that currency is worthless.
ayupmeduck2 has this:ayupmeduck2 has this:
The banks will find a way of using this 100 billion to simply rotate their portfolio. It will go something like this:The banks will find a way of using this 100 billion to simply rotate their portfolio. It will go something like this:
1. Give the BoE the most dodgy collateral you have, and swap it for that new solid cash.1. Give the BoE the most dodgy collateral you have, and swap it for that new solid cash.
2. As any refinancing etc. comes up assign the most dodgy loans to be part of this new scheme and therefore make the taxpayer liable for any losses while calling it "new lending", thus if it goes well the bank can take the profit, if it goes bad then it will be the taxpayers problem.2. As any refinancing etc. comes up assign the most dodgy loans to be part of this new scheme and therefore make the taxpayer liable for any losses while calling it "new lending", thus if it goes well the bank can take the profit, if it goes bad then it will be the taxpayers problem.
If any of this seems too blatant, then I'm sure there is somebody at Goldmann Sachs that oil the wheels. They will create some sort of "product" that makes the whole process opaque.If any of this seems too blatant, then I'm sure there is somebody at Goldmann Sachs that oil the wheels. They will create some sort of "product" that makes the whole process opaque.
This Extended Collateral Term Repo Facility, which is just like the EU LTRO, will become just another back door bank bailout program.This Extended Collateral Term Repo Facility, which is just like the EU LTRO, will become just another back door bank bailout program.
speedyp says:speedyp says:
What a fantastic idea. Give tons of money to your banker chums if they promise to share it out. Like they did last time...What a fantastic idea. Give tons of money to your banker chums if they promise to share it out. Like they did last time...
Real out of the box thinking. As Rebekah said "we're all in this together".Real out of the box thinking. As Rebekah said "we're all in this together".
Try dishing out 5 billion a week to the people who actually do all the living, working & dying in this country if you want to improve things.Try dishing out 5 billion a week to the people who actually do all the living, working & dying in this country if you want to improve things.
And And Slidewinder says:
Slidewinder says:
Here's to super-inflation in 2013!Here's to super-inflation in 2013!
9.18am: French supermarket chain Carrefour is pulling out of Greece ahead of Sunday's elections. It said today it would sell its stake in a Greek joint venture to its partner there, Marinopoulos, taking a €220m hit. Who else will join the exodus from Greece?9.18am: French supermarket chain Carrefour is pulling out of Greece ahead of Sunday's elections. It said today it would sell its stake in a Greek joint venture to its partner there, Marinopoulos, taking a €220m hit. Who else will join the exodus from Greece?
9.16am: George Osborne was listening attentively to Sir Mervyn King last night, who said:9.16am: George Osborne was listening attentively to Sir Mervyn King last night, who said:
The black cloud has dampened animal spirits so that businesses and households are battening down the hatches to prepare for the storms.The black cloud has dampened animal spirits so that businesses and households are battening down the hatches to prepare for the storms.
9.04am: The Bank England's new "funding for lending" programme is badly needed. Data from the Bank show that loans to non-financial companies - the backbone of the economy - have fallen by about £90bn, or 20%, since the peak in October 2008, as the Financial Times reported.9.04am: The Bank England's new "funding for lending" programme is badly needed. Data from the Bank show that loans to non-financial companies - the backbone of the economy - have fallen by about £90bn, or 20%, since the peak in October 2008, as the Financial Times reported.
8.53am: Encouragingly, Spanish and Italian bond yields have fallen back this morning. Spanish ten-year yields, which breached 7% yesterday, are down 10 basis points at 6.85% in early trading while the Italian equivalent is just a shade over 6%, also down 10 bps.8.53am: Encouragingly, Spanish and Italian bond yields have fallen back this morning. Spanish ten-year yields, which breached 7% yesterday, are down 10 basis points at 6.85% in early trading while the Italian equivalent is just a shade over 6%, also down 10 bps.
European shares have moved higher, with Spain's Ibex and Italy's FTSE MiB now both up 1.3%. The FTSE has climbed 0.6%, Germany's Dax is 0.8% ahead and France's CAC 0.9%. Banking stocks were the main gainers on the FTSE, led by Royal Bank of Scotland, Lloyds Banking Group and Barclays.European shares have moved higher, with Spain's Ibex and Italy's FTSE MiB now both up 1.3%. The FTSE has climbed 0.6%, Germany's Dax is 0.8% ahead and France's CAC 0.9%. Banking stocks were the main gainers on the FTSE, led by Royal Bank of Scotland, Lloyds Banking Group and Barclays.
The mood is being helped by persistent talk of further monetary stimulus from the Fed and the ECB if there is a market meltdown following the Greek elections on Sunday. The Fed meets next Tuesday and Wedneday. Recent US figures have been weak, raising expectations of more quantitative easing. Industrial production data are out at 1.30pm today. The mood is being helped by persistent talk of further monetary stimulus from the Fed and the ECB if there is a market meltdown following the Greek elections on Sunday. The Fed meets next Tuesday and Wednesday. Recent US figures have been weak, raising expectations of more quantitative easing. Industrial production data are out at 1.30pm today.
8.47am: Citi economist Michael Saunders notes that Sir Mervyn King last night abruptly shifted the Bank of England's stance on the economy and policy outlook. Saunders reckons that the emergency measures as they are won't be enough to tackle the growing crisis.8.47am: Citi economist Michael Saunders notes that Sir Mervyn King last night abruptly shifted the Bank of England's stance on the economy and policy outlook. Saunders reckons that the emergency measures as they are won't be enough to tackle the growing crisis.
First, he acknowledged that the economy has underperformed and is likely to stay weak: "Instead of a gradual recovery, output has been broadly flat…Since our Inflation Report only four weeks ago, conditions have deteriorated with weakening business surveys, a downward revision to measured output, and further slowing in economies overseas."First, he acknowledged that the economy has underperformed and is likely to stay weak: "Instead of a gradual recovery, output has been broadly flat…Since our Inflation Report only four weeks ago, conditions have deteriorated with weakening business surveys, a downward revision to measured output, and further slowing in economies overseas."
King stressed in particular the widespread adverse effects of the EMU crisis on the UK economy, hitting exports, raising bank funding costs and creating a general mood of caution that encourages firms and households to delay spending. The governor reiterated (a point he has made before) that the EMU crisis will not end until its underlying causes - deep economic problems in periphery countries and widespread weakness in euro area banks – are resolved: "Until losses are recognised, and reflected in balance sheets, the current problems will drag on. An honest recognition of those losses would require a major recapitalisation of the European banking system."King stressed in particular the widespread adverse effects of the EMU crisis on the UK economy, hitting exports, raising bank funding costs and creating a general mood of caution that encourages firms and households to delay spending. The governor reiterated (a point he has made before) that the EMU crisis will not end until its underlying causes - deep economic problems in periphery countries and widespread weakness in euro area banks – are resolved: "Until losses are recognised, and reflected in balance sheets, the current problems will drag on. An honest recognition of those losses would require a major recapitalisation of the European banking system."
Second, King made no mention of the inflation worries shared by some MPC members, moving straight from the weaker economic outlook to the case for extra stimulus – extra monetary stimulus plus measures to encourage bank lending. He stressed that both are needed.Second, King made no mention of the inflation worries shared by some MPC members, moving straight from the weaker economic outlook to the case for extra stimulus – extra monetary stimulus plus measures to encourage bank lending. He stressed that both are needed.
In our view, these measures may not immediately be enough to fully insulate the UK economy from the EMU crisis, as well as to overcome the domestic drags from high household debt and tight fiscal policy. But more can be done: QE and the "funding for lending" scheme can be expanded markedly further, while the BoE also can cut Bank Rate. Moreover, if the EMU crisis remains severe or intensifies, temporary fiscal stimulus via tax cuts or extra public investment is likely later this year to negate the existing heavy restraint planned for 2013 and 2014. The authorities have options for stimulus, and these are now being mobilised.In our view, these measures may not immediately be enough to fully insulate the UK economy from the EMU crisis, as well as to overcome the domestic drags from high household debt and tight fiscal policy. But more can be done: QE and the "funding for lending" scheme can be expanded markedly further, while the BoE also can cut Bank Rate. Moreover, if the EMU crisis remains severe or intensifies, temporary fiscal stimulus via tax cuts or extra public investment is likely later this year to negate the existing heavy restraint planned for 2013 and 2014. The authorities have options for stimulus, and these are now being mobilised.
8.45am: Manchester Business School's banking expert Ismail Erturk is less enamoured with the new "funding for lending" scheme - describing it as "aimless fire power".8.45am: Manchester Business School's banking expert Ismail Erturk is less enamoured with the new "funding for lending" scheme - describing it as "aimless fire power".
The chancellor claims that the fire power of £80bn will protect the UK economy from the effects of the euro crisis. What UK needs is not some macho talk on fire power of monetary policy. The Bank of England has been doing this since 2008 and there is no evidence that it is working. Instead we are creating a new zombie institution Bank of England with unpredictable risky consequences. What the UK needs is an intelligent comprehensive policy to reform banking and to allocate capital to the right industries that can generate growth and employment. Aimless fire power will not work.The chancellor claims that the fire power of £80bn will protect the UK economy from the effects of the euro crisis. What UK needs is not some macho talk on fire power of monetary policy. The Bank of England has been doing this since 2008 and there is no evidence that it is working. Instead we are creating a new zombie institution Bank of England with unpredictable risky consequences. What the UK needs is an intelligent comprehensive policy to reform banking and to allocate capital to the right industries that can generate growth and employment. Aimless fire power will not work.
8.35am: Alan Clarke at Scotia Bank also likes the Bank's new measures which he describes as "thinking outside the box". Will it work?8.35am: Alan Clarke at Scotia Bank also likes the Bank's new measures which he describes as "thinking outside the box". Will it work?
On the plus side, it is timely. This comes at a crucial time ahead of the weekend elections in Greece. The Bank has hinted that it has contingency plans in the event of disaster, but has now started to flex its muscles and show that it means business. The tweaking in the FPC mandate is welcome. Not only will that committee be charged with taking away the punchbowl just as the party is getting going, it will also be on hand to provide pitchers of red bull and vodka if the revellers are failing to embrace the party animal spirit. The UK has had much higher Libor rates than elsewhere and the early market reaction has been to reverse that.On the plus side, it is timely. This comes at a crucial time ahead of the weekend elections in Greece. The Bank has hinted that it has contingency plans in the event of disaster, but has now started to flex its muscles and show that it means business. The tweaking in the FPC mandate is welcome. Not only will that committee be charged with taking away the punchbowl just as the party is getting going, it will also be on hand to provide pitchers of red bull and vodka if the revellers are failing to embrace the party animal spirit. The UK has had much higher Libor rates than elsewhere and the early market reaction has been to reverse that.
However, he identified a number of potential weaknesses in the plan.However, he identified a number of potential weaknesses in the plan.
1.) Incentive structure: "sustaining or expanding" loans. More specifically, the Bank will provide funding to banks "at rates below current market rates and linked to the performance of banks in sustaining or expanding their lending to the non-financial sector…"
Past schemes have been conditional on banks increasing their loan books, but we have hardly seen a dramatic rebound in lending. We need to hope that the incentive structure is better designed in this scheme to put less emphasis on the "sustaining" and more on the "expanding" loans.		1.) Incentive structure: "sustaining or expanding" loans. More specifically, the Bank will provide funding to banks "at rates below current market rates and linked to the performance of banks in sustaining or expanding their lending to the non-financial sector…"
Past schemes have been conditional on banks increasing their loan books, but we have hardly seen a dramatic rebound in lending. We need to hope that the incentive structure is better designed in this scheme to put less emphasis on the "sustaining" and more on the "expanding" loans.
2.) Targeting the flow rather than the stock of loans. The scheme appears to want to encourage the provision of new loans at more competitive rates of interest rather than alleviate the burden on existing borrowers. While it is admirable to want to help first time buyers and new loans to businesses, this is a much smaller group than were the Bank to explicitly target reducing costs of existing loans. Targeting new loans:
a.) Relies on there being sufficient appetite for new loans. Demand may be held back by risk aversion given the sluggish outlook for growth and storms in Europe, lack of deposit for a new home etc.
b.) An implicit assumption that the boost from new loans will work its way through the system and help kick start hiring and investment and wider domestic demand further down the road.		2.) Targeting the flow rather than the stock of loans. The scheme appears to want to encourage the provision of new loans at more competitive rates of interest rather than alleviate the burden on existing borrowers. While it is admirable to want to help first time buyers and new loans to businesses, this is a much smaller group than were the Bank to explicitly target reducing costs of existing loans. Targeting new loans:
a.) Relies on there being sufficient appetite for new loans. Demand may be held back by risk aversion given the sluggish outlook for growth and storms in Europe, lack of deposit for a new home etc.
b.) An implicit assumption that the boost from new loans will work its way through the system and help kick start hiring and investment and wider domestic demand further down the road.
Our point is, it is a little indirect. Our preference has been to reduce the gap between the average mortgage rate paid by existing borrowers relative to Bank rate. To do so would immediately give a boost to household real disposable income growth, which would boost consumer spending which represents 2/3 of GDP by expenditure. It affects a much larger group of people and behaves like an old-fashioned interest rate cut. At the moment, the gap is far too wide and about to widen, with several banks announcing mortgage rate hikes.Our point is, it is a little indirect. Our preference has been to reduce the gap between the average mortgage rate paid by existing borrowers relative to Bank rate. To do so would immediately give a boost to household real disposable income growth, which would boost consumer spending which represents 2/3 of GDP by expenditure. It affects a much larger group of people and behaves like an old-fashioned interest rate cut. At the moment, the gap is far too wide and about to widen, with several banks announcing mortgage rate hikes.
He concludes:He concludes:
Our hope is that it doesn't repeat the Eurozone style announcement where initial euphoria is very quickly wiped out. In stark contrast to continental Europe, the UK government and central bank are acting in unison. Hence despite continued undertones of reluctance on Mervyn Kings' part, there must be a greater chance that this scheme succeeds where others have failed.Our hope is that it doesn't repeat the Eurozone style announcement where initial euphoria is very quickly wiped out. In stark contrast to continental Europe, the UK government and central bank are acting in unison. Hence despite continued undertones of reluctance on Mervyn Kings' part, there must be a greater chance that this scheme succeeds where others have failed.
8.21am: The immediate reaction from City economists to the Bank of England's emergency package is positive. Malcolm Barr at JPMorgan Chase says the measures are "unambiguously positive" for the outlook:8.21am: The immediate reaction from City economists to the Bank of England's emergency package is positive. Malcolm Barr at JPMorgan Chase says the measures are "unambiguously positive" for the outlook:
The credit easing part of the above is the most significant, and newspapers cite aides to Osborne as speaking of measures that could boost lending to the private sector by £80bn (5.2% of GDP). That gives some sense of the potential size of the scheme, by way of comparison the ECB's 3 year LTROs extended term lending worth near 10.7% of regional GDP. There is obviously significant detail still to be forthcoming.The credit easing part of the above is the most significant, and newspapers cite aides to Osborne as speaking of measures that could boost lending to the private sector by £80bn (5.2% of GDP). That gives some sense of the potential size of the scheme, by way of comparison the ECB's 3 year LTROs extended term lending worth near 10.7% of regional GDP. There is obviously significant detail still to be forthcoming.
Recent UK experience of attempting to set measurable targets for bank lending in return for forms of support for banks has not been a happy one. However, the initial scale of the scheme is significant, and it differs from the Osborne's SME credit easing scheme by appearing that it will be funded by reserve creation and involve loans to the banks rather than providing a guarantee on bank issued debt.Recent UK experience of attempting to set measurable targets for bank lending in return for forms of support for banks has not been a happy one. However, the initial scale of the scheme is significant, and it differs from the Osborne's SME credit easing scheme by appearing that it will be funded by reserve creation and involve loans to the banks rather than providing a guarantee on bank issued debt.
Having expressed our concerns that the marginal impact of QE was fading, we regard these steps as unambiguously positive for the outlook, even as we are disappointed (thought not surprised) that the Chancellor continues to show little flexibility on the issue of infrastructure spending initially funded directly and undertaken by the state.Having expressed our concerns that the marginal impact of QE was fading, we regard these steps as unambiguously positive for the outlook, even as we are disappointed (thought not surprised) that the Chancellor continues to show little flexibility on the issue of infrastructure spending initially funded directly and undertaken by the state.
8.17am: European stock markets have opened higher. The FTSE 100 index in London has climbed 35 points, or 0.65%, to 5502, while Germany's Dax is up 32 points, or 0.5%, to 6171 and France's CAC has gained 16 points, or 0.5%, to 3048. Spain's Ibex added 0.7% and Italy's FTSE MiB was up 0.6%.8.17am: European stock markets have opened higher. The FTSE 100 index in London has climbed 35 points, or 0.65%, to 5502, while Germany's Dax is up 32 points, or 0.5%, to 6171 and France's CAC has gained 16 points, or 0.5%, to 3048. Spain's Ibex added 0.7% and Italy's FTSE MiB was up 0.6%.
8.12am: The Bank of England hints that the new ECTR auctions - which are similar to the ECB's LTROs - are aimed to protect British banks from the storm raging on the continent.8.12am: The Bank of England hints that the new ECTR auctions - which are similar to the ECB's LTROs - are aimed to protect British banks from the storm raging on the continent.
The ECTR Facility enables the Bank to ensure that the banking sector has sufficient access to sterling liquidity to mitigate risks arising from unexpected shocks.The ECTR Facility enables the Bank to ensure that the banking sector has sufficient access to sterling liquidity to mitigate risks arising from unexpected shocks.
8.05am: The Bank of England has announced that the first Extended Collateral Term Repo Facility auction will be next Wednesday and it will hold at least one such auction a month until further notice. The auctions are part of a new emergency package of measures to get more credit flowing through the UK economy as the eurozone crisis deepens.8.05am: The Bank of England has announced that the first Extended Collateral Term Repo Facility auction will be next Wednesday and it will hold at least one such auction a month until further notice. The auctions are part of a new emergency package of measures to get more credit flowing through the UK economy as the eurozone crisis deepens.
At each auction, it will offer at least £5bn of cheap credit (six-month loans against collateral) to banks. The size will be announced on the day before the auction. The Bank will lend the money at a minium of Bank rate, which is currently 0.5%, plus an additional 25 basis points.At each auction, it will offer at least £5bn of cheap credit (six-month loans against collateral) to banks. The size will be announced on the day before the auction. The Bank will lend the money at a minium of Bank rate, which is currently 0.5%, plus an additional 25 basis points.
7.30am: 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.7.30am: 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 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 for several years, at below market rates, in exchange for the banks lending the money to households and small and medium-sized businesses.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 for several years, 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 more QE could be on its way: "The case for further monetary easing is growing." He rejected the suggestion, from monetary policy committee member Adam Posen earlier this week, that the Bank should move away from gilt purchases towards private sector assets. His argument is that the Bank does not have a mandate to put taxpayers' money at risk by making outright purchases of risky assets.King also dropped a heavy hint that more QE could be on its way: "The case for further monetary easing is growing." He rejected the suggestion, from monetary policy committee member Adam Posen earlier this week, that the Bank should move away from gilt purchases towards private sector assets. His argument is that the Bank does not have a mandate to put taxpayers' money at risk by making outright purchases of risky assets.
Simon Hayes at Barclays Capital said: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.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.