Bank of England fails to satisfy City hunger for funds

Britain's banks were left short-changed again yesterday after the Bank of England made only £13.6bn available for them to borrow – nearly three times less than they wanted.

The figures released yesterday for the Bank's weekly open market auction mirror those of a week ago when banks sought more than £30bn and received just under £11bn.

The continuing demand for Bank of England funds came as figures showed that the credit crunch is getting worse again with the three-month London inter-bank lending rate moving above 6 per cent. That compares with the Bank of England base rate of 5.25 per cent.

The Bank yesterday tried to play down the market's hunger for funds, saying it was not untypical for the auction to be heavily oversubscribed even before the crunch. But Philip Shaw, an economist with Investec, said yesterday that the figures were evidence of the hunger among banks for central bank funds, which they have been unable to secure from each other.

He also said that in a more normal situation he would expect the Libor rate to stand at about 5.2 per cent: "You would expect it to be a little lower than base rates because they are expected to fall over the next few months... Against that background, the demand for funds from the Bank should come as no surprise."

The Libor rate has reached its highest level since December, underlying the reluctance banks have to lend to each other, which has been gumming up the financial system since the credit crunch started to bite in August.

The Bank's Governor, Mervyn King, told MPs on the Treasury Select Committee that he and his staff were looking at a "long-term solution" to the credit markets' continuing problems.

But British banks have continued privately to voice frustration with what they perceive as the Bank's reluctance to act compared to the European Central Bank and the US Federal Reserve, which have been pumping funds into the financial system to improve liquidity.

The Bank is coming under pressure to cut interest rates again, despite evidence that inflationary pressures in Britain's economy remain considerable.

One banking industry source said: "If you look at the losses as a result of the credit crunch, British banks have done much better than their peers in the US and in Europe. And yet we are being disadvantaged because their central banks have been prepared to inject liquidity into the market while our central bank has not." He added: "This doesn't just affect us, it affects the man on the street too, because the lack of liquidity means there are less mortgages and loans for companies available. Those that are out there are also more expensive."

PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Developer with T-SQL, Watford, Hertfordshire - £350 - £360

£350 - £360 per day: Ashdown Group: SQL Developer with T-SQL, Watford, Hertfor...

Chief Financial Officer

120-150k: Accountancy Action: We are looking for an experienced CFO from a min...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Day In a Page

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again
Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

Liverpool v Real Madrid

Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
West Indies tour of India: Hurricane set to sweep Windies into the shadows

Hurricane set to sweep Windies into the shadows

Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?