The Bank of England today announced government intentions to inject £100bn worth of stimulus into the British economy.
The majority of the stimulus will come in the form of £80bn worth of ‘funding for lending’, a scheme intending to further incentivise banks to lend to businesses.
The move, announced by Chancellor of the Exchequer George Osborne and the Governor of the Bank of England, Mervyn King, at the Mansion House speeches in London last night, will be on top of its Quantitative Easing (QE) program. QE stimulus already totals £325bn.
The move comes on the back of further woes from the Eurozone. Greece is holding crucial elections on Sunday which many commentators have said will all but determine their continued participation in the Eurozone.
Osborne hopes that the extra changes to the banking system will help to balance the safety of UK households with the enduring competitiveness of the British banking system in a bid to preserve London as the centre of European finance.
Part of these changes include the activation of the Central Bank’s Extended Collateral Term Repo facility, initially formulated in December, and a hint that further QE may be on the way.
The Governor said that “with signs of a deterioration in the outlook, especially in world markets, the case for a further monetary easing is growing.” The program was halted in May and accusations over its efficacy have been refuted by the Bank.
The FTSE 100 jumped on the news of the stimulus, but early gains failed to endure, and it enters the weekend below the 5500 mark.
Nevertheless, there were substantial gains to banking shares. RBS was up 6.7%, Barclays 4.8%, Lloyds 4.8% and HSBC 2.0%.
Given that the weekend’s events may well hit these shares the hardest, it provides a slight buffer for the beleaguered British financial institutions.
For now, all eyes go to the Greece. Will we soon be seeing the return of the Drachma?