HIGH STREETS BANKS START LENDING TO EACH OTHER

The three-month lending rates known as Libor dropped from 6.16 per cent to 6.12 per cent.

While the drop is small, and the rate still high compared with the Bank of England’s 4.5 per cent base rate, the move marks a week of consecutive falls after the Government unveiled plans to inject billions of pounds into British banks.

Investec economist Philip Shaw said the rate fall today suggested the country’s high street banks were beginning to lend to each other again.

“It is encouraging,” he said. “There has been a trend in the past two or three sessions where offers of cash are beginning to come back to the table.”

Shaw added the markets were also pricing in the possibility of a further Bank of England base rate cut at the start of next month.

He is pencilling in a 0.25 percentage point cut to 4.25 per cent.