The Bank of England has announced a new move to boost liquidity.
Governor Sir Mervyn King said on Thursday evening that funding would be provided to banks for an extended period of several years, at rates below current market rates and linked to the performance of banks in sustaining or expanding their lending.
Sir Mervyn said the announcement was in response to the worsening economic outlook.
The Bank has already pumped £325 billion into the British economy through quantitative easing (QE) programmes, under which it buys government bonds.
Rather than further QE to stimulate the economy, the Bank will now offer cheap loans to banks on the basis that they increase lending.
"Today's exceptional circumstances create a case for a temporary bank funding scheme to bridge to calmer times," Sir Mervyn said.
