Nov. 4 (Bloomberg) -- Business Secretary Peter Mandelson told British banks that their customers will expect them to pass on cuts in Bank of England rates, after HSBC Holdings Plc signaled it probably won't.

David Hodgkinson, who is chief operating officer of Europe's largest bank, said yesterday banks around the globe are re-evaluating the price they put on risk, raising the price of loans when compared with levels in previous years. That, he said, meant any drop in lending rates won't be ``absolutely'' in line with moves from the central bank, which is expected to announce a further reduction this week.

``All the banks are in a very sticky position,'' Mandelson, on a visit to Persian Gulf states with Prime Minister Gordon Brown and business leaders including Hodgkinson, told BBC Radio 4. ``When official rates are being cut, it's reasonable for the public to expect the rates they pay are going to go down.''

While Mandelson acknowledged it was ``difficult to predict exactly when, how and at what pace the banks are going to be able to respond,'' he said customers will be ``asking difficult questions of the banks'' if mortgage and business loan rates don't fall.

Brown has called on banks to return lending to 2007 levels after a worldwide squeeze on credit dried up the appetite for risk at banks. In Britain, banks approved 33,000 mortgages in September, a third of the 104,000 monthly average last year.

Brown's View

Today, the prime minister said some of the central bank's rate cuts have been passed on and suggested that he was waiting to see how they reacted to the next decision before deciding how to act.

``We have had two interest rate cuts from the bank of England and some of that has been passed on,'' Brown told reporters in Dubai. ``Let's see what the bank of England does on Thursday and how much is passed on.''

Bank of England policy makers cut their benchmark rate a half point last month and probably will lower it again by the same amount to 4 percent on Nov. 6, according to a survey of economists by Bloomberg News.

Governor Mervyn King has said he doesn't expect the full extent of the bank's rate reductions to be felt directly by consumers.

To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net.

Last Updated: November 4, 2008 07:35 EST