The Bank of England (BoE) is to launch new stimulus packages in a bid to get the economy moving again.
Together with the Treasury, it will provide billions of pounds worth of cheap credit to banks which they can then use to lend to companies, BoE governor Sir Mervyn King has said.
Additionally, it is to offer banks access to short-term money in the event of "exceptional market stresses".
The Bank has already pumped £325bn into the economy through a programme called quantitative easing (QE), under which it buys up government bonds.
Speaking at Mansion House on Thursday, King said the eurozone debt crisis had pushed up funding costs in the banking sector, which had then impacted on businesses and individuals looking for banking credit.
"I want to make it clear that the Bank will provide banks with whatever liquidity they require given the prospect of turbulence ahead," King said.
Meanwhile, Chancellor George Osborne, also speaking at Mansion House, said the measures would "inject confidence" into the financial system.
They would also "support the flow of credit to where it is needed in the real economy", he added.
"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."
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