U.K. Banks Asked To Pass On Benchmark Interest Rate Reduction To Borrowers

November 4, 2008 11:09 a.m. EST

Abu Dhabi, United Arab Emirates (AHN) - Key British officials are pushing United Kingdom banks to pass on the reduced benchmark interest rates to borrowers. Prime Minister Gordon Brown and Business Secretary Peter Mandelson gave the issue a bigger push after a major bank official said the rate reduction will not likely be reflected on their mortgage rates.

The statement came from David Hodgkinson, chief operating officer of the Hong Kong and Shanghai Banking Corporation, who is a part of the British business delegation.

The HSBC officer told media, "Clearly if interest rates are down significantly, the rates for borrowing will go down. But I am not going to say it is absolutely linear, because it depends on the particular situation and the risk."

Mandelson, after he heard of Hodgkinson's remarks, said, quoted by the U.K. Telegraph, "When official rates are being cut it is not unreasonable for the customers to expect to see some benefits... We are taking very strong action as a government and we are doing that so that bank lending, for mortgage holders, for small business, can build up over time, as confidence can be restored. People want to feel the benefits of that action."

Despite the half a percentage point made by the Bank of England last month, only 50 percent of British banks have reduced their standard variable rates, while 82 percent of lenders had kept the benefit of the one point reduction covering the base rate cuts to themselves. Only 57 percent of the lenders passed it on, but their cut was half or less of the total three rate reductions, according to website moneyfacts.co.uk.

Hodgkinson eventually relented and told media, "We will do out best but I will not give a categorical commitment that they will come down... We would listen. We are in a very, very turbulent position and it's very hard to predict what markets will do."