Fearful British banks have reverted back to charging higher rates to lend each other money despite the Bank of England's renewed efforts to flood the UK financial market with extra funds and yesterday's quarter point interest rate cut.

The London inter bank offer rate (Libor) - the cost a bank pays to borrow money from another bank - edged up from 5.9238 per cent to 5.9275 per cent today, revealing that financial institutions are still cautious about lending funds to rivals.

Yesterday, UK banks bid for more than twice the £11 billion the Bank of England was offering in its weekly auction of money institutions can borrow for one week. The Bank of England said that banks bid for £27 billion, and that 40 per cent of that figure was eventually allocated.

Earlier this week, the Bank of England said it would increase the sum banks can borrow for three-months from £10 billion to £15 billion at next week's auction on April 16. While the move brought Libor down marginally, it today shot back up towards the 6 per cent mark it hit on March 31.

The rise in Libor is also discouraging for homeowners as lenders continue to increase the cost of mortgages, with banks blaming their high cost of borrowing for the rising rates they are charging their customers.

Yesterday, in spite of the Bank of England's Monetary Policy Committee (MPC) reducing the interest rate from 5.25 per cent to 5 per cent, Nationwide, Alliance & Leicester, Britannia Building Society and Royal Bank of Scotland all raised mortgage interest charges on some of their products.

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