Mervyn King, the Governor of the Bank of England, today undercut claims by Alistair Darling that the Bank's £50 billion-plus lifeline to Britain’s lenders will end the mortgage logjam endangering the housing market.

In an embarrassing blow to the Chancellor, Mr King told MPs that Government hopes for the funding lifeline ending the crippling mortgage drought were exaggerated.

“It is not designed to kickstart the mortgage market,” he said. “This is designed to restore confidence in the banking system, not to regenerate any aspect of the mortgage market, or achieve anything else.”

With the Government now under intense pressure over the economy, Mr King’s blunt comments will leave Mr Darling red-faced after the Chancellor hailed the Bank’s rescue plan as a solution to the drying-up of mortgage lending and its toll on the housing market.

Just over a week ago, Mr Darling told the BBC: “The idea behind it is that it will open up the market, and it will begin the process of opening up the mortgage market, which will help householders.”

Mr King's remarks came as fears that the credit crunch could turn the housing market downturn into a crash were inflamed by the Bank’s own figures showing that the number of new home loans approved tumbled in March to near-record lows, at just 64,000.

Signs also emerged that falling house prices are hitting consumer confidence and high street spending hard. Retailers reported that sales last month were the weakest for more than three years, a CBI survey showed.

Mr King told the Commons Treasury Committee today that “we should not cry gloom and doom”, but he gave a fresh warning of tougher times ahead.

He predicted that the economy’s growth for the next two years would be below its long-term average. But he also dampened hopes of further, early cuts in interest rates as he again sounded the alert over dangers from inflation.

The Governor laid the blame for the present financial crisis squarely at the feet of the City’s big institutions.

Accusing the banks of “hubris”, he delivered a renewed attack on the culture of huge bonuses he suggested had fostered lax lending and excessive risk-taking.

“Banks have come to realise that they are paying the price for having designed compensation packages which provide incentives that are not, in the long-run, in the interests of the banks themselves,” he said.

He made plain that his determination that the price of the Bank’s £50 billion to £100 billion lending lifeline to the banks would be tougher scrutiny and curbs on their activities.

“There is not much hubris around today,” he said. “We will have to ensure that through a combination of regulation, speeches, monitoring, and I hope a change in the culture of what goes on, that we do not return to this hubris.”

The Governor emphasised his belief that the funding lifeline to the banking system should help to ease money market strains and that in turn “will have an impact on conditions in the mortgage market, generally, across the board”.

However, he insisted that, not only was the rescue scheme not directly intended to bolster mortgage lending, but that he opposed any return to past conditions of easy money for borrowers and homebuyers.

“It would be a serious mistake to go back to where the mortgage market was a year ago,” he said.

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