PM And Chancellor To 'Squeeze' Big Banks

Another type of credit squeeze is about to be applied to the UK's major banking institutions.

Alistair Darling, the chancellor, has called a meeting with the country's biggest banks to urge them to pass on lower interest rates to hard-pressed mortgage holders in return for the billions of pounds of extra funds that have been pumped into the financial system.

The PM, Gordon Brown disclosed the planned summit between mortgage lenders and Darling as he upped the pressure on the banks.

He was calling for them to ease mortgage costs and come clean about any nasty shocks on their balance sheets.

The PM will also host a breakfast with the big banks tomorrow to discuss the wider issues of global market turmoil and regulation before a trip to the US where the credit crunch will be high up the agenda.

Mr Darling's meeting with bank chiefs - around a week later - will be more domestically focused, to discuss what can be done to ease mortgage charges on homeowners and make more loans available for new buyers.

This comes on foot of the Bank of England cutting base rates to their lowest level in more than a year.

However, lenders are likely to argue that the issue is more complicated than headline mortgage offers.

Bankers say mortgage rates have been cut in line with base rates for many customers on variable rate packages and linked products, such as trackers.

Despite three rate cuts since December, banks have struggled to borrow on the financial markets, so have raised charges to many mortgage holders.

New mortgages have also been getting more expensive. Experts predict mortgage rates could rise further, adding to pressure on households already hit with higher food and fuel bills.

Overall, the government is wary of letting the UK economy succumb to the same widespread problems as seen in the US, where the financial sector turmoil has spilled over into the jobs market, manufacturing and consumer spending.

Darling noted that the Bank of England's governor, Mervyn King, has vowed to do whatever is necessary to provide liquidity to the financial system, recently offering £15bn for a further three months.

(BMcC)