Until the past few weeks, the impact of the credit crunch on many large British companies’ financing has been modest. Since the collapse of Lehman Brothers that has changed. The stresses on banks have become so severe that they are pulling back from commercial lending. Some banks are invoking a “market disruption” clause in loan agreements and reneging on their promises to lend at agreed interest rates.

As in the US, British companies have seen a sudden drying up of investor appetite for commercial paper. Companies are suddenly unable to borrow for more than a few days and are having to call on much more expensive bank borrowing facilities. Even blue-chip companies are typically paying a full percentage point more on short-term debt than they were a month ago, according to the Association of Corporate Treasurers.

Commercial paper is less important in the UK than in the US, and there is no suggestion that the Bank of England will follow the US Federal Reserve move to buy paper from companies.

However, the Bank could do something similar. Until five years ago, it was a big buyer of company bills. Essentially IOUs from companies, these were “accepted” by a bank - that is, given a guarantee - and then sold on to investors. When the Bank wanted to inject liquidity into the market it would often do so by buying up these commercial bills. This meant that the interest rates were often lower than available from banks.

There is nothing to stop the Bank reviving the practice, though it may have other things on its mind this week.

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