By Marcus Leach

The Bank of England have announced two new stimulus packages aimed at improving what has been, in recent weeks, a worsening economic outlook in the UK.

Sir Mervyn King, governor of the Bank of England, has said they will, along with the government, provide billions of pounds of cheap credit to banks to lend to companies.

Banks will also have access to short-term money to deal with "exceptional market stresses". The chancellor said the measures would "inject confidence".

Speaking at Mansion House on Thursday the Chancellor said that the packages were aimed at supporting "the flow of credit to where it is needed in the real economy".

"We are not powerless in the face of the eurozone debt storm. Together we can deploy new firepower to defend our economy from the crisis on our doorstep," he said.

Rather than further quantitative easing, which now stands at £325 billion, to stimulate the economy, the Bank will now offer cheap loans to banks on the basis that they increase lending.

"Today's exceptional circumstances create a case for a temporary bank funding scheme to bridge to calmer times," Sir Mervyn said.

"The Bank and the Treasury are working together on a 'funding for lending' scheme that would provide funding to banks for an extended period of several years, at rates below current market rates and linked to the performance of banks in sustaining or expanding their lending to the UK non-financial sector during the present period of heightened uncertainty."

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