Brown urges banks to pass on rate cut

By Christina Fincher and Peter Griffiths

LONDON (Reuters) - Prime Minister Gordon Brown urged banks to pass on in full the Bank of England's latest rate cut as speculation mounted about what steps the Bank could take once its conventional ammunition was exhausted.

The central bank slashed interest rates to 2 percent on Thursday, their lowest level since 1951, and hinted more needed to be done to prevent a credit squeeze tipping the economy into a prolonged recession.

Brown said on Friday he would talk to the banks, some of which are being bailed out with billions of pounds of public money, to try to persuade them to cut the cost of borrowing.

He also pledged to take unspecified steps to try to reduce the London Interbank Offered Rate (Libor) -- the level at which banks lend to each other and whose recent historically high levels have constrained their ability to cut the rates they charge consumers.

"We are taking action to try and get that (Libor) down," he told a breakfast television show. "Banks should really pass on the interest rate cuts."

The Daily Telegraph, in an unsourced report on Friday, said the Bank of England was working on radical plans to inject cash directly into the economy.

It said such a move was a "nuclear option" to be used only when interest rates approached zero."

"Measures under consideration include direct purchases of assets, such as government debt or commercial investments, by the Bank or the Treasury, as well as expanding the Bank's balance sheet, a means of pumping extra cash into the banking sector," the newspaper said.