Sterling has been rallying sharply against the dollar and the euro after the Bank of England announced its new lending plan that will boost credit by 80 billion pounds, in an effort to stimulate the sluggish UK economy. More and cheaper loans and mortgages will be made available to businesses and individuals.
The scheme, called “Funding for Lending”, will see the Bank of England make low-cost funds available to banks and building societies.
These lending institutions will initially be able to borrow from the central banks the equivalent of 5 percent of the amount they currently lend.
The main advantage of this new scheme is that after the initial allocation of 80 billion pounds, eventually there will be no upper limit on the amount financial institutions can borrow, but the first is expected to be worth £80bn, which is 5% of the current stock of lending.
“For every pound of additional real economy lending an institution advances, an additional pound of access to the scheme will be permitted for that institution,” the Bank of England Treasury reported.
Following the news in mid-European session trading, sterling has been gaining sharply against the euro, pushing EURGBP down 3-1/2 year low of 0.7862, its lowest level since November 2008. GBPUSD rose to a high of 1.5506 at 11:49 GMT from an earlier low of 1.5412.