It may come with less drama than markets have come to expect from central bankers, but the Bank of England is likely to cut interest rates next month. Why, then, are Britain’s biggest mortgage lenders raising the rates on some of their loans?

Britannia, Nationwide, Abbey and Alliance & Leicester are all this week quietly adding a few percentage points to the cost of new tracker mortgages – the type of deals that are supposed to track the Bank of England’s base rates. This looks like a cunning, but nasty trick. Raise the rates quietly this week, and drop them with fanfare next month.

But the reality is more about invidious debt markets than perfidious banks. All lenders, not just Northern Rock, have relied on the securitisation of their mortgage debt to keep rates low - albeit to a much lesser extent. If you can’t lay off the debt, you can’t keep rates so low. The banks are left looking like villains who raise rates quietly at inopportune moments.

But this gives Mervyn King a problem. In a country where a mortgage is, for most of us, our primary debt and greatest expense, a rate cut is a powerful weapon in the Bank’s armoury. But if the Bank’s base rate is increasingly unrelated to the actual cost of our monthly repayments, the weapon becomes somewhat blunted.

Until the collapse of Northern Rock and the closing of the debt markets, mortgage lenders operated in a viciously competitive market. The fight for market share is becoming less of a driving force and the head of risk control gets a bigger office than the head of marketing – the dynamics are changing. Mr King has already admitted he is boxed in by the unusual circumstances of the current gloom; inflation is rising as the economy is slowing. He may find that the lenders’ new reality is a nail in the lid of his already claustrophobic box.

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