The governor of The Bank of England Sir Mervyn King and Chancellor George Osborne are set to launch two new stimulus packages, to ward of a worrying new phase of the credit crunch.

The 'funding for lending' proposal is a multi-billion pound emergency scheme, set up to encourage lending to households and businesses.

Under the proposals, expected to be worth around £80 billion, British banks will be offered vital funding at low interest rates.

Sir Mervyn King said he hoped the scheme would be in place within weeks.