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The government is reportedly looking into options to provide further financial assistance to the banking sector.

The Times reports that the Treasury is alarmed by data showing that lending by banks had fallen in spite of the £37 billion bailout package announced in October and reductions in the interest rate to stwo per cent.

Previously, the government offered funds to Lloyds TSB, RBS and HBOS in exchange for stakes in the three banks. It also made £350 billion available in short-term loans from the Bank of England and in the form of government guarantees of bank lending in order to boost liquidity in the system.

The Times also reports that the government could be looking to create a bad bank, an idea previously put forward by US treasury secretary Hank Paulson.

Under the proposal, the risky assets held by banks would be sectioned off into a single entity which would be in charge of their disposal.

The reports come after a steady stream of reports with gloomy economic data.

Halifax has reported that the average house in Britain had fallen in value by 16.2 per cent since October and the Bank of England has said mortgage approvals were at their lowest level since 1999, when it started collecting data on the number of new mortgages in the country.

Accountants KPMG have warned that 150,000 people could go bankrupt in the UK this year, while the Chartered Institute of Personnel and Development has said it expects up to 600,000 people to lose their jobs in 2009