Despite Several Lending Rate Reductions, British Borrowers Still Paying Thrice Bank Of England's Benchmark

December 5, 2008 11:28 a.m. EST

London, England (AHN) - If the British banks will continue to ignore the government's plea for them to pass on in full the several lending rate cuts made by the Bank of England, British Prime Minister Gordon Brown hinted he will apply pressure on the financial institutions to make them comply.

Because of the adamant refusal of some British banks, many Britons with mortgages are paying thrice the interest rate of 2 percent set by the Bank of England on Wednesday.

Brown said, quoted by the U.K. Telegraph, "I think banks should really pass on the interest rate cut. We are talking to the banks. 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."

He stressed reducing the benchmark lending rates should not be misunderstood as punishing savers. Brown explained, "The interest rate going down is necessary to get the economy moving again. If you are a saver the best protection you have is that inflation is kept low."

The Royal Bank of Scotland and the Halifax Bank of Scotland had previously announced it will not pass in full the rate cuts to borrowers. Because both banks are now partly owned by the British government after it received billions of pound in bailout funds, it would be easier for Brown to exert more pressure on the two banks.

Aside from claiming that they are balancing the interest of savers and borrowers, the RBS and HBOS said they are receiving mixed signals from the government. While they are under pressure to pass on the benchmark rate cuts, they have also been instructed to run profitable operations to be able to repay their loans to the government.