The Bank of England has signalled it was ready to cut interest rates further and give ground to British banks’ demands to do more to resolve their liquidity problems. Financial Times, Daily Telegraph, The Independent.

Appearing before the Treasury select committee, governor Mervyn King said the Bank’s existing lending against mortgage-backed securities was 'a useful bridge to a longer-term solution' but could only be 'a temporary measure'.

He said a longer-term resolution was needed to deal with the 'fragility' of financial markets and relieve the 'overhang on banks’ balance sheets of assets in which markets have closed'.

The Bank of England has faced criticism from British banks for not being prepared to act as aggressively as the European Central Bank or the US Federal Reserve to ease liquidity strains. The apparent softening of its stance follows a meeting last week with British banks.