BRITAIN GIVEN HOPE BY £500BN BANK RESCUE

Then at noon, the Bank of England and central banks around the world joined together in a surprise international assault on lending rates.

Mr Darling’s audacious rescue package aims to end the bank-lending crisis at last by injecting a mountain of taxpayers’ money into the system. The initiatives include:

£200billion to boost banks’ short-term loans and further funds of up to £250billion to guarantee loans.

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£50billion for the Government to buy substantial stakes in high street banks including HBOS, Barclays and Royal Bank of Scotland.

An end to the fat cat spiv culture in the City by demanding draconian conditions on banks’ activities and executive pay in return for the financial aid.

And in further good news, more than 500,000 investors who feared their savings would be lost in collapsed Icelandic banks were told yesterday that the Government will ensure their deposits are repaid in full.

But it was the size of the banking rescue package which took most observers by surprise. The sum outstrips the £400billion rescue package poured into the much larger US economy.

Richard Snook, of the Centre for Economics and Business Research, said: “It has been an unprecedented week and we needed action.”

But Mr Darling admitted the amount of money may not be enough. He said: “I believe it will go a long way. I am not ruling anything out.”

His deal was finalised at 5am yesterday after Treasury officials worked through the night, fuelled by black coffee and chicken curry. The Bank dropped its base rate to 4.5 per cent a day earlier than expected.

Many lenders immediately rushed to pass on the cut to home owners but there was doubt about how many will benefit and whether or not lenders will reduce rates for new borrowers.

More than half the 11.7million mortgage payers are on a fixed-rate deal which does not move in relation to the benchmark interest rate.

However, three million on trackers will see their monthly payments fall immediately. And the seven per cent on a standard variable rate will pay less if their lender decides to pass on the reduction.

Lloyds TSB, which also lends under the Cheltenham & Gloucester brand, was first to reduce its variable rate by 0.5 per cent to 6.5 per cent from November 1.

Halifax, Barclays and the Woolwich followed. Those with a typical £150,000 mortgage over 25 years will see payments fall by just over £47 a month to £1,012.81, saving £568 a year, based on a new rate of 6.5 per cent.

Louise Cuming, head of mortgages at moneysupermarket.com, said the move would help to increase confidence.

But she added: “This is not a magic cure-all and we won’t see either the mortgage or the housing market bouncing back to where it was 18 months ago. Lenders won’t change their strict attitudes to risk just yet, and the cut may not filter through to rates for new borrowers and first-time buyers.”

Ray Boulger, of brokers John Charcol, said: “Most lenders will pass something on, but a lot won’t pass it on in full.”

Stuart Law, of investment company Assetz, called for further cuts. “We are now at a point of realisation with inflation that should permit central banks to start savagely cutting rates.

“I would urge the Bank to push forward with a full per cent drop, bringing rates down to four per cent as early as this week, and I would not be surprised to see them fall to between three and 3.5 per cent by early next spring.

All eyes will now be on the swap-rate – the rate at which banks lend to each other. Last night it was 4.78 per cent – down from Tuesday’s 4.95 per cent.

The lower it goes, the more likely it is that lenders will regain confidence to lend to each other and then on to consumers.