The Bank of England's liquidity plan will see it activate an unused facility to inject at least 5 billion pounds a month into the financial system. A separate program will allow lenders to swap assets with the central bank in return for money to be loaned to companies and households. The Treasury said a 5 percent increase in lending would inject about 80 billion pounds into the economy.

Barclays Plc economist Simon Hayes said today that the central bank will boost its bond-purchase plan by 50 billion pounds next month to shelter Britain from financial woes in the euro area.

The yield on the 10-year gilt fell three basis points, or 0.03 percentage point, to 1.70 percent. The rate on two-year notes dropped four basis points to 0.25 percent after falling to 0.202 percent, approaching the record low of 0.189 percent reached on June 1.

With the euro-area turmoil pushing up funding costs and making it harder to access credit, King said the lending plan will provide banks with funds below current market rates. This will be linked to their performance “in sustaining or expanding their lending to the U.K. non-financial sector during the present period of heightened uncertainty,” he said.

Eoin Treacy's view The threat posed by the Greek election result in tandem with continued weakness in Spanish debt markets has prompted central banks to begin calculating what their response is likely to be in the event of a disorderly outcome. Disappointing export and construction figures represent additional concerns for the UK and speculation is increasing that the Bank of England will introduce additional stimulative measures.

Short Sterling futures contracts hit a new peak today, breaking out of the more than three-year range. On a yield basis this was the equivalent of a 25 basis point drop suggesting the market is at least pricing in additional monetary stimulus and potentially an interest rate cut.

The UK's Base Rate has been held at 0.5% since early 2009. The UK 2yr retested the 0.2% region this morning and a sustained move above 0.35% would be required to suggest a return to supply dominance. 10-year Gilt yields found support in the region of 1.5% earlier this month having fallen for 10 of the previous 11 weeks. The rate bounced to at least partially unwind the overextension relative to the 200-day MA and is now testing the three-month downtrend. If this action is to represent a medium-term peak for bond prices, the yield will find support above 1.5% on the next pullback and subsequently post a higher high.

UK 5-year inflation linked bond yields have been trending lower for nearly two years. At -1.46% they highlight the loss of purchasing power implicit in ultra-low rates against a sticky inflationary scenario. Nevertheless, a sustained move above -1.25% would be required to suggest more than a short-term challenge to the prevailing momentum trade.

The FTSE-350 Banks Index found at least near-term support in the region of the 2011 lows last week and has improved on that performance this week. A sustained move below 3300 will be required to question potential for additional higher to lateral ranging.

The FTSE-100 Index remains rangebound over the last thirty months but has held a progression of higher reaction lows over the last year. It rallied impressively last week and has improved on that performance this week to at least partially unwind the short-term oversold condition. A sustained move below 5250 would be required to check potential for continued higher to lateral ranging.

As if to contradict the above headline, the Pound found support in the region of the lower side of the 2-year range last week and a sustained move below $1.53 would be required to question potential for some additional higher to lateral ranging. Steadying of the Pound particularly against the Euro may suggest the UK is benefitting from some safe haven buying.