Brian Murphy, Head of Lending at independent mortgage broker Mortgage Advice Bureau, comments on the latest events in the financial markets over the past week.

The British government has announced a series of measures aimed at providing much needed stability and confidence, to money and stock markets completely unnerved by the scale and pace of world and home market events.

The government has made available a package of measures that amount to some £450 billion pounds, a sum roughly equivalent to one third of the gross domestic product of the UK economy.

This includes up to £50bn that has been set aside to directly invest in the balance sheets of four of the major high street brands including Royal Bank of Scotland, HBOS, Lloyds TSB and Barclays.

Details have just been finalised outlining the level of support being provided to each and these include up to £20bn to support RBS, £11.5bn to HBOS and £5.5bn to Lloyds TSB. Barclays will be raising a further £6.5bn but from private and institutional investors rather than the taxpayer. In the case of RBS the UK taxpayer effectively now owns up to 60% of the company and nearly 40% of the shortly to be merged super bank Lloyds TSB/HBOS.

In addition to the direct injections of capital, £250bn of the banks short term borrowing from other financial institutions is being guaranteed by government, in an attempt to free up the paralysed wholesale money markets. As well as a further extension of up to £200bn in the special liquidity scheme that will allow banks to borrow against other forms of collateral, including lower quality mortgage assets and personal loans.

The two largest recipients of taxpayer money, namely RBS and HBOS, have also stated that they will increase the level of lending to both business and retail customers in the form of mortgages and other consumer borrowing, back to the lending levels of 2007. This is good news for consumer and mortgage customers.

The package of measures announced by the government is positive and brings some much needed tangible support to the wider banking system that, if left to market forces, may have ended in catastrophe for both the banks themselves and the wider economy.

As the ability to access capital has eroded, the economy has started to stagnate and to contract in some sectors. Businesses have been unable to borrow to enable them to invest and consumers have changed their behaviour due to the lack of access to credit. Several good indicators of how the credit crunch has impacted the sectors of the UK economy has seen the massive year on year reduction in the number of housing transactions, significant falls in like-for-like retail sales, and reduced levels of new car registrations.

The half per cent reduction in the Bank of England base rate announced by the Monetary Policy Committee last week was welcomed by all sectors, but we need further reductions to provide a much needed stimulus to the overall economy that is close to recession. Let us all hope the markets respond to what has been unprecedented but required intervention by the state.