Bank governor Mervyn King says any solution to the liq- uidity crisis would not come from the Crosby report, released earlier this month. The report suggested that the bank could extend its special liquidity scheme, allowing illiquid mortgage-backed securities to be swapped for Government-backed bonds.
After revealing the details of the bank’s inflation report, King said: “Why should the taxpayer take on the risk of borrowing by individual borrowers, some of whom are risky?”
He stresses it is the job of the lenders rather than the bank to guarantee lending. King says: “Pretending there is a magic solution is not the answer.”
Cicero Consulting is to lead a study into what has happened, and what will happen to the mortgage market if the Government does nothing to aid off-balance mortgage lending and has begun to take pledges from lenders to help fund the study.
Managing director Jeremy Swan says: “It is important to know how important action is.”
It its latest inflation report, the Bank of England says output will be flat through the year and inflation will continue to rise and peak at 5 per cent in the coming months.
King said: “The adjustment of the UK economy will be painful. The next year will be a difficult one.”