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It said in a report on its Website on Friday the bonds would have a maturity of one year but would be rolled over for up to three years, meeting banks' demands for longer-term debt but ensuring the loans are not accounted for in the national debt. It did not give a source.
The Treasury said the report was "speculation." No one at the Bank of England was available to comment.
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A row of estate agents' "for sale" signs are seen on a street in South London April 3, 2008. |
Pressure has been growing on the British government and the Bank of England to do more to resolve a mortgage-debt crisis threatening to slam the brakes on the UK economy and which is contributing to a slump in support for Prime Minister Gordon Brown.
Banks' fear that high-risk mortgage debt lurking on balance sheets has driven the interest rates at which they lend to each other well above the BoE's 5 percent benchmark, in turn raising borrowing costs for households and companies.
The new plan is expected to allow banks to temporarily swap mortgage-backed securities for government bonds to help free up their balance sheets and allow them to lend more money to consumers.
Banks have warned lending could halve this year and, with an election due by May 2010, Brown's Labour government wants to ensure borrowers are not priced out of the market.
It is also desperate to stop another bank getting caught in the crunch after Northern Rock was nationalized this year.
Britain's second-largest bank, Royal Bank of Scotland, is expected to announce a rights issue this week to shore up its battered balance sheet, a move analysts see as being timed to coincide with the Bank of England bond plan.
A debt-swap scheme, similar to one America announced last month, could make banks more willing to lend to each other at lower rates.