UK’s Brown to press banks to lower lending rates
By ROBERT BARR
Associated Press Writer
LONDON (AP) – British Prime Minister Gordon Brown said Friday he will press bankers to pass on lower interest rates to consumers to ensure the economy benefits from the Bank of England’s sharp rate reduction announced Thursday.
The Bank of England cut its key lending rate from 3 percent to 2 percent, the lowest level since 1951.
Some banks have passed on the full reduction to holders of flexible-rate mortgages, but others have reduced mortgage rates only fractionally.
“I think banks should really pass on the interest rate cut. We are talking to the banks,” Brown said in an interview on GMTV.
“Remember last time there was a cut, we had to speak to them before it was passed on and we will be speaking to them again.”
The bank’s action was the third cut in as many months, dropping the base rate from 5.0 percent in October.
Lenders have been cautious about passing on the full reduction to borrowers, as they continue to have difficulties borrowing money due to a global tightening in credit markets, the British Bankers Association says.
“According to the Bank of England’s latest Financial Stability Report, the customer funding gap – the difference between customer funding and customer lending – has risen to around 700 billion pounds,” the association said.
“In the past, some of that difference has been made up by securitizing debt – effectively packaging it and selling it on,” the BBA said.
But that market has collapsed, leading to the nationalization of British mortgage lender Northern Rock and the bailout of other major banks.
Wholesale lending rates have eased recently, with the London Interbank Offered Rate (Libor) – a measure of the cost of loans between banks and the benchmark for much of consumer lending – falling steadily over the past month, both due to rate cuts by the Bank of England and gradual improvements in credit conditions.
But lenders remain cautious about parting with their money.
Halifax, the nation’s biggest mortgage lender, is cutting rates on its standard variable mortgage by 0.25 percent even though the Bank of England cut its key rate by a full percentage point. Halifax said it had passed on previous cuts and needed to manage its business in a “sustainable and prudent fashion.”
The government recently has moved to prop up banks by offering to buy shares. It now has a stake in Halifax’s parent company, HBOS PLC; it also holds shares in Lloyds TSB Group PLC, which is about to merge with HBOS, and it owns 58 percent of Royal Bank of Scotland.
Banks are also coming under public pressure to give more relief to borrowers. “Big banks refuse to pass on 2 pc rate,” The Daily Telegraph’s front page said Friday.
Savers, however, can expect lower interest on their accounts, a point made by the Daily Mail headline: “Savers thrown to the wolves.”
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