Tensions between the Treasury and the Bank of England mounted yesterday as Mervyn King, the Bank's Governor, abruptly dismissed measures being considered by Alistair Darling to end the mortgage drought, The Times reports.
Mr King signalled his strong opposition to a move being examined by the Chancellor to expand the Bank’s emergency financing programme for lenders, the Special Liquidity Scheme.
The Governor also poured scorn on a second, more controversial measure, whereby the Treasury would temporarily guarantee high-quality mortgage-backed bonds to help struggling lenders to boost the funds available for mortgage lending.
MERRILL LYNCH YESTERDAY forecast that banks still need to raise £30bn in new capital to repair balance sheets shredded by the credit crunch and will be forced to write off a further £20bn in "toxic" assets, according to The Guardian.
Barclays and HBOS are the UK banks most likely to require fresh capital, it said, warning that bank stocks are likely to retrench over the next two months.
Shares in UK banks have staged a remarkable comeback since the lows hit in mid-July, with RBS up 40%, Barclays ahead 37% and HSBC up 35%. In the US, the gains have been even more pronounced.
THE POUND HAS fallen to its weakest level in 12 years after the Bank of England signalled that it is no longer prepared to raise interest rates, The Telegraph reports.
Sterling dipped sharply against both the dollar and the euro after the Bank used its quarterly Inflation Report to slash its economic growth forecasts and predicted that inflation will dip back towards its 2% target over the next two years.
The pound dropped by 1.8% on its trade-weighted index, which measures it against a basket of other currencies, to 90.8 points - the lowest level since December 1996.IFAonline
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