The U.K.’s latest bank-rescue effort initially backfired Tuesday, helping drive its currency to historic lows while aggravating fears about the stability of the country’s banks and the fate of the government’s finances.
Rather than reassure markets, the giant new bailout plan announced Monday by Prime Minister Gordon Brown underscored the depth of the crisis faced in one of the world’s largest financial centers.
The pound slid nearly 5% Tuesday to an all-time low against the yen, according to Morgan Stanley, and to a seven-year low against the dollar. Bank shares fell steeply on fears that the government will be forced to nationalize banks, after it already injected £37 billion ($53.48 billion) into its three largest. Lloyds Banking Group led the way down among bank stocks Tuesday, dropping 31%.