The City

Mortgage lenders are continuing to raise their rates as fears grow of massive job losses in the City and on the high street.

Even as Gordon Brown appealed to bank chiefs to pass on interest rate cuts yesterday the Halifax, Britain’s biggest mortgage lender, announced that it would increase rates on some of its most popular deals by 0.5 per cent tomorrow.

And in the most dire forecast so far of the impact of the worldwide credit squeeze it was predicted that as many as 40,000 workers in the City could lose their jobs.

The prediction is yet another hammer blow for the Government at a time when Mr Brown’s leadership is coming under fire.

Yesterday he responded for the first time to questions over his future by making plain that he had no intention of going. “I’m starting a job that I mean to continue.”

The City forecast came from the US investment bank JP Morgan and was double its previous estimate. If borne out, about 5 per cent of all jobs in the City will go in the worst setback since the dot.com bubble burst in 2000, when 7 per cent lost their jobs.

Debenhams, the department store group, revealed a 12.4 per cent drop in the underlying pretax profit to £94 million and gave warning that conditions would remain challenging.

Ethel Austin, the discount fashion chain, with 300 stores and 2,800 staff, last night became the latest retailer to collapse into administration. .There were also fears for Scotland’s Ossian Retail Group, which owns the fashion chain Internacionale and the homeware chain Au Naturale. It did not meet its full rent and service charge obligations for its 150 stores last month, prompting fears it too could collapse under the weight of its losses.

Banks such as HSBC, Citigroup and Morgan Stanley have been axing staff as demand for complex debt and mortgage products has dried up in the wake of the global squeeze on credit. So far at least 2,500 jobs have gone across London, but many in the City are bracing themselves for much deeper cuts.

Mr Brown arrived in the United States early today for talks at the United Nations and tomorrow with President Bush in Washington.

His appeal at a Downing Street meeting for the lenders to pass on cuts appeared to fall on deaf ears with HBOS, which owns the Halifax, increasing its rate on some mortgages from 6.09 to 6.59 per cent. Borrowers taking out this type of deal will now pay £46 more a month. On a two-year tracker, the rate will increase from 1.49 points above base rate to 1.99 points, giving a current rate of 6.99 per cent.

Experts expect other lenders to follow Halifax’s lead. A source said: “Some lenders may use this as an excuse to put up the cost of their mortgages, despite a cut in the Bank of England base rate. Even with two year fixed deals at 6.5 per cent, they will still be flooded with business.”