UK lenders today scrambled to borrow money from the Bank of England, bidding more than four times the amount of money the central bank made available in its weekly auction despite a recent pledge to pump £50 billion into the wholesale funding market.

Lenders sought £71.5 billion from the Bank, far above the £15.3 billion available in the weekly auction. Last month, the Bank of England revealed its "special liquidity scheme" allowed banks to swap mortgage assets in exchange for Government bonds that could then be used to raise collateral.

While the three-month London inter bank offer rate (Libor), which is the cost banks charge to each other, fell from 5.79313 per cent to 5.78438 per cent today, it is still above the UK interest rate which the Bank of England's Monetary Policy Committee voted to keep on hold today at 5 per cent.

It had been hoped that the £50 billion scheme would have a positive knock-on effect on the UK mortgage market, where lenders have been increasing rates on home loans as the cost of wholesale funding remains high.

However, Mervyn KIng, the Governor of the Bank of England, recently admitted that the scheme was not designed to help banks and mortgage companies to return to the days of 100 per cent lending and risk taking. “We’re not doing this because we have an interest in the financial position of the banks as such, but their ability to finance growth in the rest of the economy,” he said.

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