LONDON (MNI) – UK Chancellor of the Exchequer George Osborne says
that the Treasury and the Bank of England will take coordinated action
to reduce bank funding costs and boost lending.

Speaking at the annual Mansion House City of London Mansion House
dinner, Osborne says that the government can use the credibility of the
public balance sheet to improve the flow of credit to businesses and
bolster bank lending which has been hit by the euro area crisis.

“The immediate priority is to counter the tightening of financial
conditions and increase in bank funding costs caused by the crisis in
the Eurozone,” Osborne said.

“A lack of credit is damaging businesses and costing jobs, I can
tell you today that the Governor (of the BOE) and I will take
coordinated action on liquidity and on funding for new bank lending in
order to inject new confidence into our financial system and support the
flow of credit to where it is needed in the real economy,” Osborne said.

“The Government – with the help of the Bank of England – will not
stand on the sidelines and do nothing as the storm gathers,” he added.

Osborne did not give details on the joint initiative, with BOE
Governor Mervyn King set to speak at the same event at 2000 GMT.

In his speech Osborne defended the coalition government’s deficit
reduction plan as having helped maintain low market interest rates for
the UK.

“The credibility of our strategy has been rewarded in the markets,
and we are today benefitting from safe haven inflows despite our large
deficit and huge banking system,” Osborne said.

Osborne also suggested that the BOE could undertake more monetary
policy easing if necessary.

“Looking forwards, it is very hard to argue that monetary policy –
in all its forms – has run out of road,” Osborne said.

Turning to discuss the Eurozone crisis, Osborne said that the
travails in the single currency area were hampering the UK’s economic
recovery, adding that the Eurozone needed deeper financial integration.

“I have argued for a year now that the Eurozone need to follow the
“remorseless logic” of monetary union towards much greater fiscal
integration,” Osborne said

“That includes proposals for a banking union – in other words, a
union that stands behind the stability of Eurozone banks and their
deposits in return for common financial supervision,” he added.

-London bureau: +4420 7862 7491; email: