Rock borrows extra £3bn from Bank

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The Independent Online

Northern Rock's borrowing from the Bank of England appeared to accelerate yesterday as the central bank revealed an extra £3bn of "other" lending. The stricken mortgage lender now appears to have borrowed £16bn in less than five weeks since the Bank of England agreed to support it with emergency funding.

The borrowing shows up on the Bank of England's balance sheet as "other assets". Northern Rock's chairman, Matt Ridley, told MPs on Tuesday that estimates based on the increase in these loans by the Bank were roughly correct. Last week, it borrowed £2.3bn, down from £2.9bn the week before.

The Bank of England agreed last week to guarantee new retail deposits at Northern Rock and accept all its assets as collateral against the central bank's loans to the mortgage lender. This raised hopes that it might become easier for Northern Rock to fund itself.

Simon Ward, chief economist at New Star Asset Management, said the figures showed "Northern Rock's funding problems remain acute". Mr Ward said the Bank of England had allowed reserves held with it by lenders to fall, contributing to a firming of three-month inter-bank borrowing rates, which had been coming down steadily from their peak of 11 September.

The Government gave further support to Northern Rock customers yesterday by agreeing to restore tax advantages to ISA holders who withdrew money from the bank amid panic after the Bank of England's funding was announced.

Panmure Gordon raised the prospect of the bank's mortgage business draining away as lock-in periods on £16bn of fixed-rate and discount loans terminate by the end of February. Without the attractive deals funded by cheap debt that once drove its business, Northern Rock will find it difficult to retain customers as it once did, Panmure Gordon said.

Northern Rock's shares fell 1.45 per cent to 204.5p, the lowest closing price since 8 October.