Bank of England injects £10 billion into money markets

The Bank of England was forced to inject £10 billion into money markets yesterday on the eve of Chancellor Alistair Darling’s first Budget. This is the latest move to combat the global credit squeeze.

The Bank said it was injecting the public funds into the short-term money markets because banks were finding it difficult to lend to each other. The move, which follows similar actions in December and January, was taken ‘in view of continuing higher pressures in short-term funding markets’.

It is believed the US recession is affecting Britain badly and that the property market is in its worst slump since the Nineties.

The Council of Mortgage Lenders (CML) has established that the number of mortgages taken out by homebuyers fell to 50,300 in January, half the rate of August last year and the lowest figure recorded since CML began collecting monthly information in 2002.

Furthermore, the Royal Institution of Chartered Surveyors (Rics) said surveyor gloom is near a record high. The number of UK surveyors reporting property price falls last month is close to the historic level of June 1990.

Both reports raised concerns that the Chancellor will deliver a ‘Bad News Budget’ today, with growth lower and borrowing likely to be higher to plug the gap in the public finances.

The Chancellor is determined to send a political message in the Budget that despite challenging time, only he and Prime Minister Gordon Brown can drive the economy through ‘choppy waters‘.

It is expected that the Chancellor will increase the duty on alcohol to address public concern at binge drinking. It is also expected that the Government will announce their intention to provide assistance for poor families hit by higher energy costs.

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