British banks are beginning to crumble under pressure from the Government to pass on yesterday's surprise 1.5 per cent interest rate cut to customers, with Nationwide and Royal Bank of Scotland (RBS) and HBOS the latest to announce new mortgage rates.

Earlier today, Chancellor Alistair Darling summoned chief executives from Britain’s biggest banks to Downing Street to demand that the Bank of England's rate cut is passed on to borrowers immediately.

Lenders including HSBC, Barclays, Lloyds TSB, HBOS and Abbey attended the meeting with Mr Darling.

Yesterday, only Lloyds TSB and Abbey announced changes to the standard variable rate (SVR) on their mortgages, and were joined by Bradford & Bingley this morning.

However, by this afternoon Nationwide announced that it would pass on the full 1.5 per cent cut to its borrowers, reducing its SVR from 6.19 per cent to 4.69 per cent, effective from December 1.

While Nationwide attended the meeting with Mr Darling this morning, a spokeswoman for the lender denied that political pressure had any bearing on its decision.

She said: "We made our rate cut completely independently of the meeting this morning. We have made this decision on our own."

Halifax, Britain's biggest mortgage lender, which is owned by HBOS, also said it would pass on the full 1.5 per cent rate cut, reducing its SVR from 6.5 per cent to 5 per cent from the beginning of next month.

RBS, which owns NatWest, also said today that mortgage customers will benefit from a full 1.5 per cent reduction and its SVR will fall from 6.69 per cent to 5.19 per cent.

But the lender credited its decision to a fall in Libor, which is the rate at which banks lend to each other and is key for pricing mortgages, rather than growing pressure from the Government.

Yesterday's 1.5 per cent rate cut by the Bank of England to 3 per cent, the lowest level in 54 years, helped to ease the strain in nervous money markets.

Libor fell by more than 1 per cent from 5.561 per cent to 4.496 per cent today. However, the figure remains almost 1.5 per cent higher than the official interest rate.

The spread between the Bank of England's borrowing cost and the rate that banks charge to borrow money over a three-month period — a key measure in the wholesale money market — is the widest since October 22.

The day before, Mervyn King, the Governor of the Bank of England, publicly acknowledged for the first time that a recession in the UK is now likely.

Lenders have argued that Libor has remained stubbornly high, despite reductions in the base rate and have dragged their feet in passing on the decline in borrowing costs to their customers.

Last month, the Government announced a £37 billion bailout package for Britain's struggling banks, which has been funded by the taxpayer.

Lloyds TSB, HBOS, owner of Halifax and Bank of Scotland, and RBS will borrow money from the Government.

Halifax, which is Britain's biggest lender, Barclays, which owns the Woolwich mortgage brand, and HSBC have not yet cut their rates, insisting they remain under review and any changes will be announced shortly.

Money Central: find out how much you will save on your mortgage

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