Brown demand rate cuts

It seems that Mr. Brown is a little disappointed in HSBC. The bank won't pass on the recent interest rate cuts to its borrowers.

The Abbey is also in the doghouse. It is about to increase all tracker rates by 0.5 per cent tomorrow. Furthermore, it will not offer tracker deals to anyone without at least a 25 per cent deposit.

A Downing street spokesperson said "The Prime Minister is very clear — we are taking the action we are taking in order to see that more mortgage holders and small businesses do feel the benefit of that action. When official rates are cut consumers would expect to see the benefits of that."

Of course, the banks are absolutely right to resist this crude political pressure. Banks should set whatever interest rate they like. Of course, their rates should be sufficiently prudent to avoid future losses, which could result in a bank failure and a taxpayer bailout. This latter question, which is essentially a risk management issue, should be a matter for the regulator and is of no direct concern to Downing street.

However, it is a sign of the times. Due to years of poor risk management, the banks have unwittingly walked into a New Labour trap. The worst sort of interventionist tendencies are now coming out. Brown needs growth, and since the government now effectively owns the banking system, he thinks he can demand rate cuts, regardless of the commercial interests.

Browns frantic demands for mortgage rate cuts also illustrates another unanticipated development in the crisis. The Bank of England have lost control of monetary policy. The MPC may cut its official rate, but banks are unwilling to follow.