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Bank of England moves to boost British economy

June 14, 2012: 5:15 PM ET

Bank of England governor Mervyn King announces steps to boost bank lending.

The Bank of England and the Chancellor of the Exchequer are working on new policies to support the British economy, BoE governor Mervyn King said Thursday.

"With signs of a deterioration in the outlook, especially in world markets, the case for a further monetary easing is growing," King said in a speech to business leaders in London.

King said he is working with Chancellor George Osborne on a "funding for lending" scheme to help spur bank lending and stimulate economic activity.

"In present circumstances, when private sector spending is depressed by extreme uncertainty, there may be a case for a scheme to underwrite risks which the market itself is unwilling to take," said King.

The scheme would provide funding to banks for "several years" at rates below current market rates, he said. The funding would be linked to the banks' performance in lending to the real economy "during the present period of heightened uncertainty."

The program could support an estimated 80 billion pounds in new lending, sources told the Financial Times. In addition, the BoE will activate a six-month liquidity program Friday for banks to borrow no less than 5 billion pounds a month, the newspaper said.

The goal is to "tackle the high level of funding costs directly," said King. He hopes the plan will be in place within a few weeks.

Speaking at the same event, Osborne said the program will "inject new confidence into our financial system and support the flow of credit to where it is needed in the real economy."

"We are not powerless in the face of the eurozone debt storm," Osborne added.

Osborne said euro area nations need to move towards greater political and economic integration to make the currency union sustainable. "But it may take Greek exit to make it happen," he added.

Greek voters will return to the polls Sunday in a repeat of last month's inconclusive Parliamentary election. The election is being framed as a potential catalyst for Greece to exit the euro area.

"That is a decision for the Greek people," said Osborne. "A time for decision has come."

Osborne said he had doubts about the euro project from the start, recalling that his party opposed membership in the currency union.

"But we should all be clear that it is strongly in Britain's interests for our biggest trading partners to succeed," the Chancellor said. "The risks for our economy of a disorderly collapse of the euro are huge."

The comments from King and Osborne come as investors nervously await the results of Greek elections on Sunday. Rumors of possible coordinated actions by central banks around the globe to boost liquidity if needed lifted stocks Thursday.

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Ben Rooney
Ben Rooney
Staff writer, CNNMoney

Ben Rooney is a staff writer for CNNMoney. He covers the European debt crisis and other international finance stories, in addition to writing about stocks, bonds, investing and other Wall Street-related news. Follow Ben on Twitter: @ben_rooney

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