Bank move has an immediate effect

The Bank of England's plan to ease the credit squeeze has had an immediate impact with one of the UK's largest lenders cutting rates on some deals.

Abbey's 0.1% cut on its two-year tracker and flexible mortgages from 30 April represents a tiny proportion of the mortgage market.

But Abbey said it expected the Bank's move to reduce the cost of banks lending to each other in time.

Chancellor Alistair Darling has backed the £50bn scheme to kick-start lending.

Under the scheme, banks will be able to swap potentially risky mortgage debts for secure government bonds to help them operate during the credit squeeze.

'Important step'

"It is an important step in bringing greater liquidity to the market," said a spokesman for the Abbey.

He added that Abbey believed that this extra funding would, in time, reduce the interest rate at which banks lend to each other, known as the Libor.

"We will continue to review the cost of funding and will look to reflect further changes in our mortgage range going forward. We hope other lenders will also act to support the stimulation of the mortgage market," he said.

The chancellor told MPs on Monday that banks and building societies had a duty to treat their customers fairly.

He said he would discuss with lenders, at a meeting at 11 Downing Street on Tuesday, the best ways to help those coming to the end of fixed rate deals.

Meanwhile, Government-owned Northern Rock cut its Standard Variable Rate by 0.1% on Monday, its first move after the Bank of England cut base rates by 0.25% 11 days ago, and more than a week after the chancellor said banks should pass on interest rate cuts to homeowners.

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