The Bank of England moved today to pump an additional £55 billion into the banking system in a fresh effort to ease worsening credit markets as hopes for a US bail-out receded.

The Bank said the operation was consistent with its objective of forcing down the three-month benchmark Libor interbank lending from yesterday's 6.2762 per cent closer to 5 per cent base rate. Three month dollar Libor rose by nearly 30 basis points to 3.76 per cent.

The Bank's announcement came as London shares and sterling both slipped lower. The pound fell to $1.8388 compared to $1.8411 at the previous close while FTSE shares dropped by almost 100 points at the open to around 5100.

US crude oil futures fell $2 to a little over $106 this morning.

In a statement the banks said it "intends to offset the additional reserves taken up in the long-term repo operations in its other operations, if necessary by draining reserves".

In a statement this morning, the Bank said it was today offering to lend $30 billion in US dollar funds for one week.

Starting on Monday it would conduct weekly auctions and accept mortgage-backed securities as collateral.

The first such operation will be an auction for £40bn maturing on Thursday 15 January 2009.

“These operations are intended to address funding pressures over quarter end,” the Bank said, adding that it formed part of a coordinated series of actions with other central banks including the US Federal Reserve, the European Central Bank and the Swiss National Bank.

The collapse two weeks ago of Lehman Brothers and the subsequent extreme volatility in world financial markets have led to a sharp deterioration in money markets in recent days.

With commercial banks hoarding cash and increasingly unwilling to lend to one another, there has been a surge in demand for short-term lending from central banks.

That demand is expected to increase further today as talks about a $700 billion bail-out of the US financial system dissolved into chaos last night.

The Swiss National Bank offered $9 billion of US dollars for one week, saying central banks were taking the array of initiatives to address the severe quarter-end stresses.

The European Central Bank soon followed suit, offering $35 billion of US dollars for one week.

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