Second bank bailout not on the cards, UK's Brown says

By Adrian Croft

LONDON, Jan 4 (Reuters) - The British government is talking to banks about stepping up loans to credit-starved companies but a second bailout of banks is not on the cards at present, Prime Minister Gordon Brown said on Sunday.

"I don't think that's the first thing that anybody would think about at the moment," Brown said in a BBC television interview, when asked if the government planned a second recapitalisation of the banks.

The government set aside up to 37 billion pounds ($53 billion) in October to boost the capital of three major British banks. The banks were hard hit by the credit crunch which is now sending the British economy spinning into recession.

The BBC and The Times newspaper both reported on Saturday that the government was considering a second bailout because measures taken so far had failed to get them lending again.

"We've got other means by which we will try to get liquidity and cash into the system," Brown said, noting several new schemes to help businesses had just taken effect.

Companies faced problems stemming from lack of bank funding, he said. "We've got to solve that problem over the next few weeks. Now that is what we are urgently talking about with the banks at the moment," he said.

Finance minister Alistair Darling also told the BBC recapitalisation was "not your first port of call".

"But over the next few weeks, we will continue to discuss with banks what further steps we can take that will help lending particularly to small and medium-sized businesses," Darling said.

"Although lending is taking place, it is not taking place at the level that I would like to see," he said.

CREDIT SQUEEZE TIGHTENS

A Bank of England survey released on Friday showed the credit squeeze for British families and businesses looked set to intensify in 2009.

That could deepen the recession and swell job losses, reducing Brown's chances of winning the next general election that he must call by mid-2010. The opposition Conservatives consistently lead Brown's Labour Party in the polls.

Brown told the BBC on Sunday he had no plans to call an election in 2009, saying it was "the last thing on my mind".

Options being considered by the government to kickstart lending included cash injections, offering banks cheaper state guarantees to raise money privately or buying up so-called "toxic assets", The Times reported on Saturday.

Asked whether zero interest rates were possible in Britain, Brown said it was a matter for Bank of England Governor Mervyn King.

The Bank of England slashed interest rates by a full percentage point in December to 2 percent. It is expected to follow that with at least a half-point cut this week.

Brown said that while falling oil prices and interest rates were pushing inflation down, "we've got an exchange rate pressure upwards". The pound has fallen sharply against the euro in recent weeks, driving up the cost of imports.

Brown said it was too early to say whether the measures he has taken to stabilise the economy and banks are working.

Brown's government pledged late last year to spend billions of borrowed pounds to try to boost the economy.

In an interview with The Observer newspaper on Sunday, Brown outlined plans for a 1930s U.S.-style public works programme to ease the pain of recession by creating around 100,000 jobs. He plans to hold a "jobs summit" on Jan. 12. (Editing by David Holmes)