Taxpayers’ exposure to Northern Rock appears to have soared to £29 billion, growing by £2.7 billion in the past week alone, Bank of England figures suggest.

Analysing the latest Bank balance sheet data, Simon Ward, the New Star economist, said that the increase was consistent with reports of a pickup in depositor withdrawals. “It’s possible that a billion or two is due to other items but it [Rock borrowing] certainly looks on course to hit £30 billion by the end of the year,” he said.

Amid signs of banks continuing to hoard cash, Mervyn King, Governor of the Bank of England, said yesterday that strains in credit markets were soon likely to feed through into tougher lending conditions for both households and companies. The Bank also announced it was taking action to head off the threat of a severe end-of-year squeeze in the money markets. The Bank will offer an exceptional facility of £10 billion of extra funding for five weeks to UK banking groups.

Meanwhile, one of Northern Rock’s biggest shareholders, the hedge fund SRM, has accused the troubled bank’s chairman, Bryan Sanderson, of trying to “scare people” into accepting a takeover bid by Virgin Group. Mr Sanderson had said the imminent threat of collapse meant that the Rock board must now consider taxpayers’ interests as well as those of investors.

In a newspaper interview today, Jon Wood, head of SRM, responded: “I can only think Sanderson made the comments to try and scare people into accepting the Virgin bid. I really don’t think he knows what he is talking about.”

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts