The Bank of England has lent financial institutions £10bn in a bid to revive the flagging UK economy.

The move is designed to encourage banks to begin lending to each other again at a reasonable rate, after their reluctance to do so following the US sub-prime mortgage fallout sparked a credit crunch in the UK.

Banks and financial institutions can bid for access to the funds at a minimum rate of 5.36%.

Initial demand was not as great as had been expected, perhaps partly because the inter-bank lending rate (Libor) has already started to fall.

The US Federal Reserve, European Central Bank and the national banks of Switzerland and Canada have also lent money, taking the combined total to around £300bn.