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Chancellor promises new lending firepower to combat eurozone storm

During a speech delivered in the City this evening, Chancellor of the Exchequer, Gorge Osborne, revealed that he and Bank of England governor, Mervyn King, have drawn up plans for coordinated action on liquidity aimed at injecting new confidence into the UK financial system.

Addressing bankers at The Mansion House, the Chancellor 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.”

Mr Osborne went on to promise funding for lending to the family aspiring to own their home and the business that wants to expand, saying:

“The Government – with the help of the Bank of England – will not stand on the sidelines and do nothing as the storm gathers.

“We are rolling up our sleeves and doing everything possible to protect British families and firms.”

Following on from the Chancellor, Mervyn King made his address in which he commented:

“No central bank has done more in recent months to flood the system with liquidity than the ECB – one trillion euros injected through two long-term refinancing operations.

“Those two operations demonstrated that liquidity is not the issue because after a few months we are back to where we were. The problem is one of solvency.”

According to the BBC’s business correspondent, Robert Peston, UK banks will need around £80 billion to lend on to consumers and business, if the scheme outlined by the Chancellor is to have the desired effect.

The extra billions would add to the £325 billion provided by the Bank of England’s quantitative easing programme so far, at which point it can only be hoped that the liquidity / solvency conundrum has been correctly addressed in the UK.

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