Tensions between the Treasury and the Bank of England mounted yesterday as Mervyn King, the Bank’s Governor, abruptly dismissed measures being considered by Alistair Darling to end the mortgage drought.

Gary Duncan, Economics Editor, The Times – 14 August 2008

Mr King signalled his strong opposition to a move being examined by the Chancellor to expand the Bank’s emergency financing programme for lenders, the Special Liquidity Scheme.

The Governor also poured scorn on a second, more controversial measure, whereby the Treasury would temporarily guarantee high-quality mortgage-backed bonds to help struggling lenders to boost the funds available for mortgage lending.

Mr King’s move to dig in his heels against the plans comes after The Times revealed that the drastic steps to revive the near-dormant mortgage market are under active consideration by Mr Darling. The Governor’s opposition threatens to inflame again the Bank’s tense relationship with the Treasury, which saw the institutions at loggerheads during the Northern Rock crisis. Full Article