Pressure had been growing on the British government and the Bank of England to do more to resolve a mortgage debt crisis threatening to slam the brakes on the economy.
"The Bank will be making money available to the British banking system ... the idea behind it is it will open up the market and it will begin the process of opening up the mortgage market, " Finance Minister Alistair Darling said on Sunday .
The Treasury and Bank of England have declined to comment on details of the plan but local media suggested the package involved swapping 50 billion pounds ($99.80 billion) of government bonds for mortgage-backed securities.
Britain's Sunday Times newspaper said the arrangement was intended to run for just over a year and would involve imposing a "haircut" on the securities the BoE takes on to its books -- valuing them at a discount.
The move would free up bank balance sheets and allow banks to lend more to consumers suffering the effects of an economic downturn, with falling house prices and soaring oil and food prices.
Figures last week from the British Retail Consortium showed like-for-like sales in British shops fell for the first time in two years and at the quickest rate in almost three years last month as consumers cut back on luxuries like electronics.
The global credit crunch which followed a slump in the U.S. subprime mortgage market left UK banks wary of lending to each other or offering new home loans, and led to the forced nationalisation of mortgage lender Northern Rock this year.
Royal Bank of Scotland is expected to announce a share issue this weekin a move which analysts believe could raise over $20 billion and lead to similar calls on shareholders by other UK banks to shore up their balance sheets.
Gordon Brown and his ruling Labour party still face an uphill battle convincing voters the government can deal with the effects of the credit crunch, however.
An increasing number of Labour politicians have expressed unease about Brown's decision to scrap the 10 pence tax band, a move that could leave millions of the poorest Britons worse off.
Brown had to interrupt a visit to the United States last week to call a junior minister and convince her not to resign over the matter.
Darling said on Sunday he would return to the issue in future budgets but could not make changes this tax year.
Brown's popularity has plunged since he took office last year over fears he cannot manage the economic downturn despite a successful decade as finance minister and his party now risks a drubbing in local elections on May 1 -- and losing power to the opposition Conservatives in general elections due by mid-2010.
Research by pollsters Populus for the Sunday Mirror paper found Labour had dropped three points in less than two weeks, and now trailed the Conservatives by 10 points at 30 percent.
Foreign Secretary David Miliband, seen as a possible Brown successor, said the party was now a "political underdog."
"People will only listen to our claims about what we have done right if we are candid about what we have not," he wrote in the popular News of the World newspaper. "Employment has never been higher but people are worried about housing. Crime is down but people think crime has gone up."
Brown also faces a government rebellion in the next few weeks over plans to extend to 42 days the period in which terror suspects can be detained without charge.
The Sunday Times newspaper said it has seen a document showing that more than 50 Members of Parliament, include 10 former ministers, are expected to vote against the plan.