Report: Bank of England braces for 3rd wave of crisis

LONDON, May 9 (Xinhua) -- The Bank of England is bracing for a third wave of the financial crisis with a surprise 50-billion-pound (about 75 billion U.S. dollars) cash injection, the Guardian newspaper reported on Saturday.

"The increase in quantitative easing was driven by fears in Threadneedle Street that the credit crunch is still sucking the life out of the British economy and the banking sector remains in deep trouble", a report by the Guardian said.

The bank took the city of London by surprise by announcing it would pump an extra 50 billion pounds (about 75 billion dollars) of new money into the economy despite recent stock market rallies.

The new mood of caution chimes with comments from business leaders on Friday, who warned that the seeming green shoots in the economy had shallow roots, the Guardian said.

Mervyn King, governor of the Bank of England, and several other members of the bank's Monetary Policy Committee (MPC) are said to be unconvinced by talk of green shoots that have helped propel the FTSE 100 share index by more than 20 percent in the past month.

Officials of the Bank of England are concerned that big banks which are now supported by the taxpayer, such as the Royal Bank of Scotland and Lloyds Banking Group, are struggling to increase lending volumes, as they had promised in return for help from the government.

Fears of a false dawn echo the mood at the beginning of the year, when apparent recovery in financial markets was wiped out by a second wave of crisis led by RBS and Lloyds.

Both banks again warned of sharp increases in bad loans this week. RBS said on Friday it was seeing little sign of green shoots.

The Bank of England is also worried that continued stresses in the global financial system will suck money out of the UK as cash-starved international banks send money home.

King will present the MPC's latest quarterly inflation report next Wednesday and speculation is rife the report will contain gloomy forecasts for economic growth and inflation, which will probably be projected as being below the 2 percent target in two years' time, even though it currently stands at 2.9 percent.

Special Report: Global Financial Crisis