Mandelson urges banks to pass on rate cuts

By Kate Kelland

LONDON (Reuters) - Business Secretary Peter Mandelson urged banks on Tuesday to pass interest rate cuts on to customers as markets are preparing for the Bank of England to slash rates by 75 basis points later this week.

Fifty-one out of 62 economists saw the bank cutting rates by at least 50 basis points, in a Reuters poll last Thursday.

Mandelson said the government had "strong expectations" that the banks should respond appropriately to the steps the authorities have taken to ease the credit crisis, such as offering cash injections and cutting official interest rates.

"We are taking very strong action as a government," he told BBC radio. "People want to feel the benefits of that action. And if it appeared that the banks were standing in the way ... then I think many banking customers are going to be asking some difficult questions of the banks."

Mandelson was responding to comments by David Hodgkinson, the chief operating officer of HSBC, Europe's largest bank, who said on Tuesday there may be some "stickiness" by banks in passing on an expected rate cut by the Bank on Thursday.

Despite Mandelson's plea, British mortgage bank Abbey, owned by Spain's Banco Santander, said it would raise interest rates on some of its home loans.

It said it would increase repayment rates on its tracker loans -- set at a fixed margin over the Bank of England base rate -- by up to half a percent to new customers from Wednesday.

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