Alistair Darling summoned the chief executives of Britain’s biggest banks to Downing Street today to demand that they immediately pass on the Bank of England’s interest rate cut to their customers.
Treasury sources confirmed to The Times that the Chancellor told the heads of all Britain’s big high street lenders – including HSBC, Barclays, Lloyds TSB, HBOS Nationwide and Abbey – to implement rate cuts immediately.
Yesterday, the Bank of England slashed interest rates by 1.5 per cent to 3 per cent, the lowest level in 54 years, and today, the shock reduction helped to ease the strain in nervous money markets.
Libor, which is the rate at which banks lend to each other and is key for pricing mortgages, fell by more than one per cent from 5.561 per cent to 4.496 per cent.
However, the figure remains almost 1.5 per cent higher than the official interest rate.
The spread between the Bank of England’s borrowing cost and the rate that banks charge to borrow money over a three-month period – a key measure in the wholesale money market – is the widest since October 22. The day before, Mervyn King, the Governor of the Bank of England, publicly acknowledged for the first time that a recession in the UK is now likely.
Lenders have argued that Libor has remained stubbornly high, despite reductions in the base interest rate and have dragged their feet in passing on the decline in borrowing costs to their customers.
Until midday today, only Bradford & Bingley (B&B), Lloyds TSB and Abbey had given their customers the full benefit of yesterday’s rate reduction.
Nationwide followed suit this afternoon by passing on the full 1.5 per cent cut to its borrowers, reducing its standard variable rate (SVR) from 6.19 per cent to 4.69 per cent, effective from December 1.
Earlier today, B&B reduced its product variable rate (PVR) overnight in line with the Bank of England’s base rate cut.
Around 90 per cent of its customers have borrowed at this rate or have fixed or tracker deals, which revert to Bradford & Bingley’s PVR. The average rate is pegged at between 1.5 per cent and 1.75 per cent above base rate, meaning borrowers pay interest between 4.5 per cent and 4.75 per cent.
Last month, the Government announced a £37 billion bailout package for Britain’s struggling banks, which has been funded by the taxpayer.
Lloyds TSB, HBOS, owner of Halifax and Bank of Scotland, and Royal Bank of Scotland (RBS), which controls NatWest, will borrow money from the Government. But neither HBOS, which is set to merge with Lloyds TSB, nor RBS have said they will pass on the rate cut to their borrowers.
Halifax, which is Britain’s biggest lender, Barclays, which owns the Woolwich mortgage brand, HSBC, Royal Bank of Scotland, NatWest and Nationwide have not yet cut their rates, insisting they remain under review and any changes will be announced shortly.
November 7, 2008
Helen Power, James Charles
Source: Times Online