The conflicting statements in full

The Bank of England today announced a surprise £10 billion cash injection into the British banking system, signalling a complete U-turn by Governor Mervyn King and his hands-off stance on the global financial turmoil.

Today, Mr King was forced to inject a further £10 billion into the money markets after last week branding such a move as encouraging "excessive risk-taking". The Bank will now follow this move by allowing financial institutions access to three additional loans lasting three months. It is unclear how big this funding will be.

The extraordinary statement came a day before Mr King is due to appear before the Treasury Select Committee.

The announcement lifted shares sharply higher in London. The FTSE 100 closed 176.7 points higher, at 6,460. London shares were also buoyed by a positive start on Wall Street after the Federal Reserve cut US interest rates last night. The Dow Jones was up 81.4 points, at 3,820.76, when London closed.

The latest funding brings the Bank's total cash injection to £18.8 billion and will fuel sharp criticism of Mr King's actions since the start of the current crisis three months ago. In contrast, the European Central Bank and the US Federal Reserve have both made numerous cash injections into their markets.

Mr King's dramatic change of mind comes just two days after Chancellor Alistair Darling promised that the Government would guarantee the money of savers placed with any solvent institution.

The Chancellor has guaranteed £28 billion worth of deposits held in troubled mortgage lender Northern Rock.

As part of today's shock announcement, the Bank of England will allow financial institutions to pledge a wider range of collateral against drawing down from the £10 billion fund, including putting up their mortgage assets as security.

In a statement today, the Bank said: "This measure is being taken in order to alleviate the strains in longer maturity money markets."

The UK central bank said it will release the cash next week to reduce the three-month cost of borrowing between banks, otherwise known as Libor, which reached 6.55125 per cent today compared with the UK interest rate of 5.75 per cent.

Yesterday, the Bank made an extra £4.4 billion available to the banking sector, on top of an additional £4.4 billion released last week.

In a letter sent to Treasury Committee chairman John McFall last week, Mr King said it was not the Bank of England's job to bail out financial institutions.

Mr King said last week:"The current turmoil, which has at its heart the earlier under-pricing of risk, has disturbed the unusual serenity of recent years, but, managed properly, it should not threaten our long-term economic stability."

He also said: "On the one hand, the provision of greater short-term liquidity against illiquid collateral might ease the process of taking the assets of vehicles back onto bank balance sheets and so reduce term market interest rates.

"But, on the other hand, the provision of such liquidity support undermines the efficient pricing of risk by providing ex post insurance for risky behaviour. That encourages excessive risk-taking, and sows the seeds of a future financial crisis."

The FTSE 100 index rose 134.4 points to 6,417.7 on the back of the Bank of England's announcement and the Fed's move last night to cut its interest rate by half a percentage point to 4.75 per cent.

The next decision on UK interest rates – currently 5.75 per cent – will take place when the Bank's Monetary Policy Committee meets on October 2-3.

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