The Bank of England will attempt to relieve the strain on credit markets this morning with the first of its two auctions to inject £11.35 billion of liquidity into the financial system.

The move is part of a co-ordinated action between five central banks, including Britain, the US and the eurozone to address the credit squeeze.

The auction today by the Bank of England will offer £10 billion over a three-month period with the borrowing rate determined by the rate at which banks are bidding to borrow money.

Yesterday, the European Central Bank (ECB) said that it would offer unlimited funds below market rates to ease the liquidity crisis, suggesting that the central banks' co-ordinated intervention was not enough to ease pressures in the money markets.

The ECB announced that it would offer unlimited two-week funds today at 4.21 per cent, which is far below the rate of 4.9 per cent borrowing cost banks were charging each other yesterday.

British banks and financial institutions will place bids using the Bank's computer system for open market operations between 10.00am and 10.30am today.

A series of auctions held by the Bank in September to ease liquidity strains failed to attract any bidders, who were deterred by possible damage to their reputations, as well as the high minimum rates of 6.75 per cent.

In sterling credit markets, conditions have eased slightly.

Libor, the rate at which banks lend to each other, fell yesterday at both the one-month and three-month maturities.

Three-month Libor fell to 6.41 per cent yesterday, down from 6.63 per cent on December 5.

The US Federal Reserve held its first auction of $20 billion (£9.9 billion) yesterday.

The Times revealed this morning that Mervyn King wants to be reappointed for a second term as Governor of the Bank of England, despite his increasingly tense relationship with the Treasury over measures to prevent a repeat of the Northern Rock fiasco.

Political sources say that he believes that any decision not to renew his tenure at the end of June would be seen as an unjustified blot on the Bank’s handling of the crisis and recent events.

Mr King will face his critics today at the Commons Treasury Committee, which claims that he should have acted earlier to deal with the lack of liquidity in the interbank market.

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