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BoE injects £55m to ease liqudity

The Bank of England (BoE) has today injected £55 billion into the banking system in efforts to ease liquidity, which has seized-up as the world waits for further news on the proposed $700 billion bailout of US financial institutions.

The BoE has acted with other central banks to ease short-term lending conditions in the money markets; the Swiss National Bank is providing $9 billion for one week and the European Central $35 billion for the same period.

The turbulent period on Wall Street that prompted the Lloyds TSB/HBOS merger plans has left banks extremely nervous and Libor, the rate at which banks lend to one another, has risen sharply in the past week.

Under its Special Liquidity Scheme, introduced last April, the BoE already auctions money on a weekly basis but says it is increasing short-term funding now in the hope that it will keep Libor down.

Meanwhile all eyes are on the US as political discussions over the rescue plan continue later today.

Some reports describe the negotiations as ending in disarray last night.

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