Enlarge imageLONDON (Reuters) - Fresh evidence of the severity of the credit squeeze has forced Chancellor Alistair Darling to consider new measures to get lending flowing again, The Times reported on Saturday.
The newspaper said Darling would decide "within weeks whether to pump billions more into the economy" amid signs that a 37 billion pound recapitalisation of top banks, announced last October, had failed to get credit flowing.
The options under consideration included cash injections, offering banks cheaper state guarantees to raise money privately or buying up so-called "toxic assets," The Times said, without giving its source.
A Bank of England survey released on Friday showed the credit squeeze for families and businesses looked set to intensify into 2009 despite unprecedented measures to recapitalise the banking system and get lending flowing again.
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The grim news came as a deluge of data suggested the economy was plunging deeper into recession.
A survey from Halifax, the country's biggest mortgage lender, showed that house prices fell a record annual 16.2 percent last month. Bank of England figures showed mortgage approvals slumped to a record low in November and a survey of purchasing managers showed manufacturing activity contracted in December for an eighth month running.
The pound resumed its slide on the foreign exchanges and two-year gilt yields fell below 1 percent for the first time as traders bet the Bank will deliver another hefty rate cut next week.
Interest rates have already been slashed to 2 percent, their lowest since 1951.
The Times said the Treasury planned to focus on state-backed guarantees to encourage private finance, but a wide range of interventions was on the table, including further injections of taxpayers' cash.
Under one option, a "bad bank" would be created to dispose of bad debts, it said. The Treasury would take bad loans off the hands of troubled banks, perhaps swapping them for government bonds. The toxic assets would be parked in a state vehicle or "bad bank" that would manage them and attempt to dispose of them while "detoxifying" the mainstream banking system, it said.
Ministers were expected to take the final decision on what extra help to give the banks by the end of this month, it added.
(Reporting by Adrian Croft; Editing by Gary Hill)
