Talks planned with banks to ease lending

By Keith Weir

LONDON (Reuters) - The government plans talks with banks about boosting lending to business after the Bank of England cut interest rates to a record low.

Prime Minister Gordon Brown said that banks would be made to honour a commitment in a government rescue package to maintain the supply of loans to mortgage holders and small businesses at 2007 levels.

"We will be meeting the banks in the next few days to agree with them on how we can move this forward," he told Sky News.

The Bank of England cut interest rates by 50 basis points to 1.5 percent on Thursday, the latest in a series of cuts designed to prevent Britain becoming stuck in a deep recession.

However, banks remain reluctant to lend as they try to rebuild their capital base following the credit crunch, blunting the impact of rate cuts.

Banks are also not always passing on the full base rate cuts to their customers.

Royal Bank of Scotland, owner of NatWest and one of the top lenders to consumers and businesses, said on Friday it would cut its standard variable rate by only 0.25 percent.

The bank, 58 percent owned by the government after last year's bail-out, said it wants to cushion savers from the full impact of the rate cut. RBS said the vast majority of its small business lending was directly linked to base rates.