Home owners and borrowers were given fresh hope yesterday after an unprecedented intervention in the faltering financial markets by the world's largest central banks.
The Bank of England joined its counterparts in America, Europe, Canada and Switzerland in pumping billions of dollars, euros and pounds into the international money markets in a desperate attempt to ease the credit crisis.
Mervyn King and Henry Paulson: Banks unite to help out home owners
Mervyn King [left] and US Treasury Secretary Henry Paulson discuss global financial stability at a G20 meeting
Struggling banks will be able to bid for the money, in the form of loans, to prop up their finances.
The unexpected move raised hopes that Britain's mortgage lenders, who rely on the markets for funding, will now be able to cut the cost of borrowing for hard-pressed home owners.
Many banks and building societies have still not passed on last week's quarter percentage point cut in interest rates, despite mortgage repayments being more expensive than at any time in the past 15 years. Rising living costs and higher rates on personal loans have placed added pressure on families.
Financial analysts predicted that yesterday's intervention could help the economy avoid a wider recession and avert a housing slump.
It is the first time the world's major central banks have taken co-ordinated action to pump extra money into the financial markets and it highlights the depth of concern over the global economy.
The only recent economic parallel was after the 9/11 attacks in 2001 - when banks around the world cut interest rates.
However, this is thought to be the first time banks have directly targeted the money markets with such a significant cash injection. Around £20 billion will be put into the UK markets, along with tens of billions of dollars and euros worldwide.
The dramatic intervention - described by one analyst as akin to a "temporary nationalisation" of key parts of the financial markets - comes after repeated efforts by the Bank of England and its counterparts to alleviate the credit crunch.
It is thought to be aimed at preventing the potential collapse of banks following the run on Northern Rock in September.
The credit crunch began in August when fears over a slowdown in property prices in the US caused a major freeze in the money market. Banks stopped lending money to each other and, as they suffered a shortage of credit, many passed on the higher costs of borrowing to ordinary consumers.
The crisis has deepened in recent weeks, with fear growing among ...
Source
http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS
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