The Bank of England is preparing to launch a plan to ease the credit crunch, according to the BBC.

Final details of the plan have not yet been finalised but it appears that a new lending programme for UK banks could be launched as early as next week.

It will be supported by the Treasury and will see banks'' mortgage assets swapped for government bonds.

The credit crunch is due to a lack of trust between banks that used to lend to each other freely, comfortable in the knowledge that the loans were secured against mortgage assets.

However, when the US market collapsed banks became cagey about lending to each other as the mortgages were no longer seen as being secure.

The government''s idea is to swap the mortgages for bonds so that banks once again feel secure about lending to each other – bringing liquidity back to the markets.

As a result of this, it is hoped that banks will reduce mortgage rates and bring more deals back to the market.