Bank of England Governor Mervyn King said that the case for more stimulus is increasing amid deterioration in the economic outlook.
"With signs of a deterioration in the outlook, especially in world markets, the case for a further monetary easing is growing," he said in a speech at the Mansion House on Thursday.
Measures to ease conditions in the banking sector can complement any further easing in monetary policy. King said the central bank is willing to provide whatever liquidity banks require given the prospect of turbulence ahead.
The BoE is working with Chancellor George Osborne on a a "funding for lending" scheme that would provide funding to banks for an extended period of several years at low rates.
The central bank chief said the bank will start holding auctions of sterling liquidity with a maturity of six months.
Further, King said the U.K. recovery and rebalancing may have become more difficult. Meanwhile the imbalances in the world economy still await resolution.
"Not only have the euro-area problems escalated to the point where exit for Greece and other periphery countries is the subject of widespread speculation, but signs of a slowing in China, India, and other previously buoyant emerging economies, such as Brazil, are appearing daily," he said.
At the same event, Osborne said the BoE and the treasury will take coordinated action on liquidity and on funding for new bank lending in order to inject new confidence into the financial system and support the flow of credit to where it is needed in the real economy.
"Together we can deploy new firepower to defend our economy from the crisis on our doorstep," Osborne said.
by RTT Staff Writer
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